Brussels, 08/09/2014 (Agence Europe) - The launch of the next “troika” mission in Greece, Ireland's determination to repay its loans from the IMF early and the economic situation characterised by sluggish growth and the risk of deflation, will be on the agenda of the informal Eurogroup meeting on Friday 12 September.
Greece. Ministers will draw up the balance sheet for the Greek rescue plan, following the recent discussions in Paris, which laid the foundations for the next follow-up mission, for which the go-ahead will be given at the end of this month (see EUROPE 11149). One of the questions to be tackled during this mission will be the trajectory of Greek debt in the context of the most recent economic figures and budgetary forecasts for 2015. The two parties did not reach an agreement in Paris on the scale of the budgetary shortcomings next year, which the troika believes are twice as big as that suggested in the government's forecasts.
The announcement, this weekend, by Greek Prime Minister, Antonis Samaras, on tax cuts, particularly taxes on fuel, however, was given a positive reception by the Commission. Simon O'Connor, the spokesperson for the Commissioner in charge of the euro, Jyrki Katainen, stated that “as long as expenditure is made more efficient, revenue is collected more effectively and the economy recovers, there should be scope for adjustment in the tax rates in the future while delivering the budgetary targets.” He also added that a certain step had already been taken in this direction, with a reduction in social contributions on 1 July last.
The rescue plan is due to end by the end of the year and the next three months will be rather interesting, explained one senior European civil servant. Nonetheless, he was unable to say what would happen in the future; but he pointed out that Greece was determined to regain its financial autonomy and the strategy pursued by the Greek Treasury sought to reconstruct an appropriate curve for lending rates. The same source pointed out that there is now access to the market. In this scenario, the IMF programme would only continue until 2016 and the country would be totally financed by the markets. The volumes mentioned are not enormous, even those for the rest of this year, “we are talking about a sum under two billion”, explained this senior European official. Whatever happens, Eurozone involvement will not end with this programme but will be pursued with post-programme monitoring that will involve several decades of loan repayments contracted through the EFSF.
Ireland. Ministers will take note of the discussions regarding the early payment of loans from the IMF to Ireland, which Irish counterpart, Michael Noonan, will have had this week with several European leaders, including Katainen (Monday) and president of the European Central Bank (ECB), Mario Draghi (Tuesday). In keeping with the formal request in this connection from the Irish authorities, this senior European civil servant regarded this initiative favourably and indicated that this is good for Irish debt, for Ireland's financial stability and is therefore good for us. According to the source, it is normal that eurozone countries that have finished the bailout plan think about the possibilities for early repayments because of the advantageous financing conditions on the markets. The money for such a repayment could also come from the privatisation of nationalised banking assets during the financial crisis, such as those at Allied Irish Banks. Nonetheless, a political decision is not expected on Friday at the end of Eurogroup, which has control of EFS loans to Ireland and the procedure requires the approval of several national parliaments. The subject will also be tackled at an EU wide meeting on Saturday during the informal Ecofin because Ireland borrowed €22.5 billion from the EU's informal European Financial Stabilisation Mechanism (EFSM) managed by the European Commission. According to the Irish Times, Ireland may save € 375 million a year, if it repaid the IMF loans.
Cyprus. Ministers will be examining the results from the fifth troika follow-up mission carried out at the end of July. The troika imposed conditions on paying a tranche of aid (€350 million from the eurozone and €86 million from the IMF), whereby preliminary actions would need to be carried out. At the end of July an insolvency framework was approved. After several days of hesitation, a law on property seizures was approved by the Cypriot parliament on Saturday 5 September. Several laws submitted by the political parties are now being examined by the government and the Cypriot President indicated that eight out of fourteen had been signed. According to this senior EU official, no formal documentation on the Eurozone has been developed on the provisions in this package, which is regarded as a very controversial in Cyprus. If nothing is received by the end of the week, Eurogroup will not give the go-ahead for the next payment. The Cypriot banking sector was hit heavily by toxic loans and the troika had called on the authorities in the country to revise legislation on property seizures they regarded as too flimsy. In its most recent follow-up report, the IMF explained that seizures could take place over the next twenty years. The Cypriots explained that the discussions with the troika on the package were expected to take place on Monday afternoon but the Commission was unable to confirm this. The Cypriot press underlined a number of concerns on Monday relating to the compliance of the provisions in this package, which, if insufficient, could compromise the next payment.
Economic situation. Eurogroup will proceed to an exchange of views on the economic situation in the euro zone, which is characterised by sluggish growth and the risk of deflation (inflation that stood at 0.3% in August), a week after the unexpected decisions by the ECB to lower its main lending rates and launch a shares programme backed up by shares and secure bonds (see EUROPE 11148).
At a budgetary level, ministers may discuss the question of flexibility in the Stability and Growth Pact, in the perspective of the national budget projects member states are due to submit to the European Commission by the middle of October at the latest. The conclusions of the European Council are “clear”: they establish a link between the application of structural reforms and the possibility of extending deadlines set out for carrying out medium-term objectives, underlined the senior civil servant, who also noted that such a level of flexibility had already been used in the past.
Continuing with the follow-up work on the implementation of the socio-economic policy recommendations specifically addressed to the Eurozone (see EUROPE 11115 et 11092), ministers will again examine the question of income tax, and more precisely, the way they can reduce the tax burden on work (“tax wedge”) in an effort to stimulate job creation. On Friday the EU28 ministers will be examining structural reforms (for example: reform of the labour market and pensions, administrative simplification) and investment (for example: the follow-up to the “Small Business Act”, completion of the internal digital and energy markets), which are the markets most likely to stimulate growth. A preparatory document from the Italian presidency on these discussions indicated that common EU action is necessary in order to send a clear message to citizens about the determination to promote a higher level of potential growth through structural reforms and increased investments.
Banking union. The Eurogroup will be looking at implementation of the banking union's “supervision” section of the package, while the ECB and the European Banking Authority (EBA) will be fine-tuning their analysis of the solidity of the banking sector, whose results are expected out in the second half of October. The question of contributions from the banking industry to national/European resolution funds will be tackled on Saturday during the Ecofin Council (see EUROPE 11143). The Commission will be presenting its enabling measures by the end of September. (MB and EL)