Brussels, 28/03/2014 (Agence Europe) - European finance ministers will meet informally in Athens, Greece, on Tuesday 1 and Wednesday 2 April largely to discuss recent progress in the Greek bailout.
Eurozone finance ministers will meet for talks of particular interest for Greece, explained a high-ranking EU official on Thursday 27 March. The Eurogroup will examine the outcome of the troika's fourth monitoring mission (the troika being the European Commission, European Central Bank and International Monetary Fund) and the technical-level agreement of 20 March (see EUROPE 11043).
The ministers will agree in principle on the outcome of the troika mission, which began in September. This will pave the way for countries that have to approve the disbursement of aid to arrange to do so, hopefully in time for final agreement in the second fortnight of April. The next batch of aid, of some €10 billion, will be paid out in a number of stages in line with implementation of special measures that have yet to be decided. The official said it was “safe to say that the largest tranche will be well before the large redemption lump in May”. At the end of May, Greece has payments of some €9 billion to make. That will be followed by one or two sub-instalments, the size of which will depend on how much is paid out in the initial batches, in June or July. At present, there is €10.1 billion set aside for Greece by the eurozone.
The IMF has announced that its board will be meeting in May to endorse a payment. No aid has been paid to Greece by the IMF since July 2013, but Bill Murray, an IMF spokesman, says this should mean a change to the payment timings and a bigger payment in May. The IMF needs visibility about financing of the bailout plan over the year to come before it can make any payments itself and “the IMF will require assurances by its European partner that, if so required, financing would be available and I have no reason to doubt that such assurances, if asked, would be given”, said Murray. The second eurozone bailout for Greece ends in December 2014, but the second IMF bailout runs until the first quarter of 2016. Asked about a potential third bailout, a high-ranking official said there has been no talk about that, but “if you're running a sizeable primary surplus, then financing requirement are quite minimal”. In any case, the Greeks would have to request a third bailout, should they want that. The source said it was not for others to say to the Greeks that they feel they need it, but rather for the Greeks to say we feel that we need further aid.
Under Eurogroup rules, the talks on the Greek debt and its possible reduction by Europe cannot start until Eurostat has confirmed the primary budget surplus for 2013 (not including debt servicing costs). If necessary, an in-depth analysis and a number of meetings would be needed before agreement is reached, which will take some time so talks may well continue until the autumn.
Portugal. In the middle of May, Portugal is due to exit its aid programme, which began in 2011. The Portuguese government will be presenting its spending programme for 2015, which should allow the country to reduce its deficit from 4% in 2014 to 2.5% in 2015. Presentation of the plans is required before payment will be forthcoming of the next batch of aid from the European financial stability fund in the first half of April.
The ministers in Athens will not officially discuss Portugal's exit. The Portuguese government sees the fact that it will exit without needing to request preventative aid from the European stability mechanism as a big political victory, and is continuing talks at national and international levels.
One sign of growing investor confidence in Portugal is the fact that the yield on ten-year bonds has fallen to around 4%. After raising five and ten-year debt from a number of banks, the Portuguese government now needs to prove that it is able to directly manage a new debt issuance, which is a more risky approach, but needed before the end of the aid programme.
Representatives of the country's lenders say the Portuguese economy is picking up (see EUROPE 11030). On Wednesday 26 March, Portugal's central bank revised up its 2014 growth forecasts, now expecting GDP to grow by 1.2% rather than 0.8%, based on forecasts from the government, the EU and the IMF, along with its 2015 forecasts (growth of 1.4% rather than 1.3%). The improvement is due to a rise in private consumption, expected to grow by 1.3% in 2014 (rather than 0.3%).
FTT. On the fringes of the Ecofin Council on Wednesday, the finance ministers of eleven countries - France, Germany, Austria, Belgium, Slovenia, Portugal, Greece, Italy, Spain, Estonia and Slovakia - will meet to discuss their planned financial transactions tax (FTT), to be introduced using the enhanced cooperation mechanism. The Greek Presidency of the Council of the EU is not planning for the EU28 to discuss the matter until there is a broad majority agreement among the eleven FTT nations. On Wednesday 25 March, it unveiled a new draft compromise on the issue.
In Athens, the question of principles for taxing shares will be discussed: the issuance principle whereby the tax will be levied on transactions by a body registered in one of the eleven FTT countries, or a combination of principles (the country where the body has its headquarters, the ownership principle etc). For the issuance principle, the ministers will be asked whether this should apply with or without the sharing of tax revenue. The idea for the taxing of derivatives is for a general picture to emerge, working on the notional value (as suggested by the Commission), market value or initial margin.
Structure of the bank sector. On Wednesday, the Ecofin Council will hold an initial discussion of the controversial plans to reform banking in Europe. A diplomat said on Friday 28 May that this would be an initial exchange of views that may set some guidelines and address the big issues in the draft legislation, but no decisions are expected to be taken.
At the end of January, the Commission suggested that the 30 biggest banks in the eurozone (those with assets of over €30 billion, trading of over €70 billion or 10% of the bank's business activity) be prohibited from speculation on their own account, in other words investing use their own funds or borrowing cash for investment at a low rate due to the implicit guarantee that they will always be bailed out by the state because they are “too big to fail”. This trading ban is expected to start in January 2017 and would apply to own account trading in financial instruments and commodities, but not sovereign debt. The ban would also apply to investing in speculative funds (but not investment funds with leverage effect), along the lines of the Volcker rule in the United States that comes into force next month.
Before the crisis, own account trading accounted for 15% of bank balance sheets, but this has shrunk to between 2% and 4%.
In the draft regulation the Commission suggests giving national bank supervisory bodies the option in some cases of forcing banks to hive off risky trading (market-making, complex derivatives, complex securitisation and loans to capital investment funds) into legally and financially separate bodies, unless the bank can demonstrate that the business in question does not pose a risk. The idea is to separate off the riskiest banking to ensure that any losses to not impact on the bank's retail banking (savings and payment systems).
France and Germany have criticised the draft legislation, which goes beyond current French and German rules, criticising the Commission for being too soft on the United Kingdom whose banks have been granted exemption from the draft securitisation rules.
Banking Union. Ministers and central bankers will discuss progress in introducing banking union. On Thursday 27 March, the member states endorsed the inter-institutional agreement on the bank resolution mechanism (SRM, see EUROPE 11048). The European Parliament's economic and monetary affairs committee will give its approval to the draft agreement on Monday 31 March so the EP can give the final approval in this second plenary in April.
This will not mark the end of work on bank resolution because the European Commission will publish implementation measures (the method to be used by the eurozone nations to calculate national contributions to the national compartments of the bank resolution fund, SRF). A Commission source says that information and recommendations are needed in this connection from the European Banking Authority to enable the Commission to publish proposals later this year. A diplomat pointed out that any discussion of the matter in Athens would be premature.
Ministers will not discuss direct recapitalisation of banks until the SRM has been fully finalised.
FEMIP. On Tuesday, European and Mediterranean finance ministers will discuss how the European Investment Bank's FEMIP (Euro-Med investment and partnership fund) could do more to back the private sector in countries around the Mediterranean.
The ministers will agree on wording ahead of the spring meeting of the international financial bodies. (MB and EL)