Brussels, 17/02/2012 (Agence Europe) - The European finance ministers will meet from the afternoon of Monday 20 February, with a view to finding a favourable outcome to the second financial bailout for Greece. On Tuesday, they are expected to reach a political agreement on the two proposed regulations which will step up budgetary surveillance of the countries of the eurozone and add to the revised stability and growth pact.
Greece. Optimism was to an extent the order of the day, on Friday 17 February, regarding an agreement on the finalisation of the second Greek programme. After a three-way telephone conversation, German Chancellor Angela Merkel and the prime ministers of Italy, Mario Monti, and Greece, Lucas Papademos, said that they were confident that an agreement would be reached on Monday, according to an official Italian press release.
“We cannot afford the luxury of waiting. The longer we wait, the more expensive it will be”, said a diplomat, who feels that an agreement is “extremely close”. The European Commission also wishes to succeed. Nonetheless, there is some work still to be finalised. An escrow account will be created, in order to keep a close eye on the implementation of the programme and to give priority to servicing the debt to private and institutional creditors (see EUROPE 10548). Athens is also expected to apply some 20 priority measures by mid-March if it wants to avoid defaulting at the end of that month. It will be up to the Greek government to announce these measures, which must be easily measurable.
Greece has fulfilled the three conditions of the Eurogroup prior to the finalisation of the Greek programme: the national parliament has voted in draconian measures to be implemented in exchange for aid, the two parties (PASOK and New Democracy) of the government coalition have committed in writing to support the programme, irrespective of the result of the general elections of April and €325 million in new cuts have been identified in pensions and armament expenditure. These efforts were welcomed on Thursday by the president of the Eurogroup, Jean-Claude Juncker, who said that he was “confident” that the decisions would be made.
A number of countries of the eurozone (Germany, Finland and the Netherlands) continue to have misgivings about Greece's ability to respect its budgetary and macroeconomic commitments. They are pleading for the money to be drip-fed and watched like a hawk, or for a proportion of the aid to be kept back until after the general elections. The German finance minister, Wolfgang Schäuble, does not want to pour money into a “bottomless pit”, his Dutch counterpart Jan Kees de Jager proposes negotiating with the “next government”. This prevarication, which is exasperating to the Greeks, is also motivated by domestic policy considerations, as the populations of these countries are hostile to continued aid payments to Greece.
The various planks of the Greek bailout, however, form a global package. The voluntary participation of the private sector in the partial restructuring of the Greek debt is guaranteed up to €30 billion by the public aid promised, of €130 billion. Without this guarantee, private creditors are not moving. Additionally, once the financial transaction linked to this restructuring is underway, Greece will be considered temporarily in partial default by the financial rating agencies. At least an extra €30 billion will be used to provide the European central bank system with additional guarantees on the restructured Greek debt instruments. This means that more than €60 billion will be needed from the word go, or half the aid pledged.
The troika (European Commission, ECB, IMF) has finalised the report on the sustainability of the Greek debt. Due to the worsening economic situation in Greece since the European Council's agreement of October last year, the restructuring operation on the Greek debt will not make it possible to bring this debt from 160% of national GDP to 120%. The figures of 128% and 129% have been put forward. According to this diplomat, “if it is verified, areas have been identified to plug the gap”: - reduction of the interest rate applied to existing loans to Greece; - the renunciation of the ECB “not to make money on the back of the Greeks”, the European institution having implied that it would waive interest on its €40 billion of debt instruments that it has accumulated since May 2010 (see EUROPE 10551).
European rescue fund. The ministers will question the adequacy of the European firewall made up of the current European Financial Stability Facility (EFSF) and the future European Stability Mechanism (ESM). One way of reinforcing this firewall would be to transfer the financial guarantees already granted to the EFSF to the ESM. As things stand, in July of this year the ESM will have a loan capacity of nearly €500 billion and the EFSF will continue to honour its commitments to Portugal and Ireland until mid-2013. The European Council will make a decision in early March.
According to the Commission, the Eurogroup should not take any decisions on appointing a new member to the board of directors of the ECB, from May of this year. There are three candidates in contention: Spain's Antonio Sáinz de Vicuña, the Slovenian Mitja Gaspari and Yves Mersch of Luxembourg.
“2 Pack”. The Ecofin Council will reach a political agreement in principle on the two proposed regulations to complement the revised stability pact (see EUROPE 10539). The agreement will allow the Danish Presidency to launch informal talks with the European Parliament. An initial text codifies the reinforced monitoring already in force in Greece, Ireland and Portugal. It also allows the Commission to put states under reinforced supervision if their public finances start to wobble. A second text requires the Eurozone 17 to present, in mid-October of each year, their draft budget for the following year. Each country must also delegate the realisation of the economic forecasts, on the basis of which its government puts together its budget, to independent national bodies.
“Macroeconomic imbalances”. The ministers will hold an exchange of views on the Commission's decision to carry out an in-depth analysis on the macroeconomic situation of 12 countries (see EUROPE 10553). In the spring, these analyses could lead to the triggering of new infringement proceedings in the framework of the preventative or corrective plank of the pact. Several member states, among them Spain, have expressed surprise at the difference in treatment for the member states, as the Commission is not looking at the cases of the countries in surplus, such as Germany. “It is certain that this legitimate question will be asked”, the diplomat predicted.
As part of preparations for the European Spring Council, the Ecofin Council will adopt conclusions on the budgetary and macroeconomic priorities as part of the European semester. According to a draft text of which EUROPE has had sight, they are recommending a “determined” consolidation of the public finances, not to be done at the expense of growth. In order to be accepted by the populations, structural reforms must take account of considerations related to social equity.
G20. The ministers will adopt the European position to be defended at the meeting of the “G20 Finance” in Mexico at the end of this month. On increasing the resources of the IMF, “the EU, and the countries of the eurozone in particular, are perfectly aware of their special responsibility”. The eurozone will provide “€150 billion worth of additional resources by means of bilateral loans” and “the Czech Republic, Denmark, Poland and Sweden have expressed their willingness to take part in the process”.
Budgetary orientations 2013. In its conclusions, the Ecofin Council will stress the need for a “realistic” 2013 budget to be developed, respecting the principle of good financial governance. The Council will recommend the EP to give discharge to the Commission on the execution of the 2010 budget. (MB/transl.fl)