Brussels/Luxembourg, 19/09/2014 (Agence Europe) - Klaus Regling, director general of the European Stability Mechanism (ESM), said on Thursday 18 September at the ESM headquarters in Luxembourg that he “didn't know yet whether there was a need or appetite to do more” to reduce the Greek debt.
Regling said that a lot of things had happened since the most recent analysis of the public debt trajectory, some negative, some positive, such as the fact that the country's borrowing rates have dropped and it is now able to raise finance on the money markets. He said that everyone would soon make their minds up but he “didn't know yet whether there was a need or appetite to do more.” Although the IMF and Greece constantly remind the eurozone of its promise in November 2012 to make a further reduction in the Greek debt burden, people in the eurozone say that this was not promised and the 2012 statement actually means something else. It states that “Euro area Member States will consider further measures and assistance, including inter alia lower co-financing in structural funds and/or further interest rate reduction of the Greek Loan Facility, if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the programme.” Above all, explained Regling, it would need to be required to achieve the target of a debt-GDP ratio of 124% in 2020 and well below 110% en 2022, but there is nothing automatic about such a move as far as the eurozone is concerned, although the eurozone could make a gesture. A symbolic gesture perhaps, because Regling says there is little room for manoeuvre (a reduction in interest rates on bilateral loans and extension of the repayment deadlines for the loans).
The bailout will come to an end in December 2014, and progress in Greece will continue to be monitored through post-programme surveillance twice a year until the country has paid back 75% of its loans. The IMF programme will continue until the first quarter of 2016. This monitoring, along with the budget surveillance tools under the European Semester process, does not appear to the eurozone to be enough to ensure that Greece will continue to keep up the pace of reform. From experience and in the light of reform fatigue in the country, the eurozone may consider what are described as new “incentives” to avoid using the word “sticks.” The Wall Street Journal revealed recently that the eurozone is considering connecting each stage of debt reduction with the introduction of prior actions, as currently occurs for the payment of aid instalments.
Will Greece forego final aid instalment? The next troika mission (the European Commission, the European Central Bank and the IMF) will start in the final week of September and will provide the information needed to answer the current questions, including what will happen to the remaining €11 billion of cash earmarked for bank recapitalisation. The results of the assessment of the strength of European banks, due out in October, will answer the question of whether banks will need more capital or whether the money can be used for “budgetary financing,” explained Regling. The European Financial Stability Fund, a forerunner of the ESM, had only one payment left to make to Greece, of €1.8 billion. “If the money is not disbursed by that deadline (31 December 2014, Ed.), than either it will not be disbursed at all, or the programme will be extended with a political process (with in some cases national parliaments),” said Regling. He said that the EFSF programme “ends at the end of this year unless something happens, but this requires political decisions, whether last disbursement or not.” Several member states view the IMF's involvement as very important and would not be happy for the EFSF to cover Greece's remaining financing requirements until 2016 in place of the IMF. “Greece can always say they don't want any more money from the IMF; the possibility exists, whether Greece can afford to give up, I don't know at the moment,” added Regling. (EL)