Brussels, 22/02/2015 (Agence Europe) - At a Eurogroup meeting on Friday 20 February, Greece managed to reach agreement with the finance ministers of the other eurozone nations to extend its bailout agreement by four months, a bailout known as a Master Financial Assistance Facility Agreement (MFAFA).
Friday's agreement says: “The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility (…)”. By the end of Monday 23 February, the Greek authorities are to submit a list of reforms to be examined by the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF). If this list is deemed sufficiently comprehensive to be a valid starting point, then national ratification procedures can start on Tuesday, following a Eurogroup teleconference. If not, then the agreement shall no longer apply. Should the institutions give the green light, the Greek authorities and the institutional trio (European Commission, ECB and IMF) will have until the end of April to provide further details about the list and to decide what flexibility shall apply. The head of the Eurogroup, Jeroen Dijsselbloem, commented that if this can be done before the end of April, then so much the better. Any new measures decided upon by Greece must be fully financed by the government without jeopardising the budgetary targets. This is what Dijsselbloem means by 'flexibility'. He explained that the reason the programme was extended for four months, rather than six as requested by Greece, is because of the need to move quickly as there is not much remaining funding.
The validity of the last tranche of the current EFSF (European Financial Stability Facility) is extended, as is the €1.9 billion of profits acquired by the ECB as part of the SMP (Securities Market Programme), which the ECB has agreed to transfer back. Payment of the two amounts is subject to approval by the Eurogroup. The €10 billion earmarked for banks in the Greek Financial Stability Fund (HFSF) shall return to the EFSF but will continue to be available for bailing out Greek banks upon request from the ECB, in its role as eurozone bank supervisor. An ECB source said that the money was not needed in the immediate term because Greek banks are solvent.
Why is the cash returning to the EFSF rather than remaining in the HFSF? “There is concern. We want to make sure money remains available for the banks and not the financing of the government”, Dijsselbloem stated. “That was never our intention”, replied Greek finance minister Yanis Varoufakis, talking instead about management of the NPL (non-performing loans) or toxic loans. An ECB source said that if this money were to be destined to tell bad payers that they do not have to repay their debts, then Greece would not be given it. While large amounts of money are being withdrawn from Greek banks each day, ECB sources say no restrictions will be needed on the movement of capital. Varoufakis said that the previous government's election campaign had made people afraid of a Syriza victory, but that savers would soon feel reassured.
To reach this agreement (largely sealed between the key players ahead of the Eurogroup meeting), Greece had to make huge concessions, such as recognising the presence of the three institutions, which will no longer be called the 'troika'. The Greek authorities have promised to pay off all their financial obligations to their lenders in full and on time. The Greek government has also promised to have an “appropriate primary surplus”, which Varoufakis described as “constructive ambiguity”. “Today we managed to avert a sequence of many years of suffocating primary surpluses that our economy can simply not produce”, explained Varoufakis. Greece aimed to generate a primary surplus of 3% in 2015 and 4.5% in 2016 and beyond. The joint Eurogroup statement says: “The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account”.
Varoufakis welcomed the fact that the statement makes “no mention of any requirement that we reduce pensions or increase VAT”. Asked about his desire to raise the minimum wage, he said that this was for the private sector and would not affect the public purse. He pointed out that the freeze on unilateral action by the government applied for four months. In June, the minimum wage could be put on the negotiating table. Varoufakis welcomed the fact that “we didn't sign up to any memorandum of understanding and we committed to write our own script on reforms that need to be enacted”.
The European commissioner for economic and financial affairs, Pierre Moscovici, said he thought the “balanced” agreement would enable the government to implement “the changes that it wants”, and guarantee that the commitments taken would be kept. The managing director of the IMF, Christine Lagarde, stated that these four months would leave the time needed to draw something up which “might be different”. Dijsselbloem said that everyone agreed on having a discussion about the need for a follow-up arrangement at the end of the programme.
“The Greeks will find it hard to explain this agreement to their voters”, commented German finance minister Wolfgang Schäuble, who on Thursday rejected the Greek request for an extension to the programme. Varoufakis, however, could not see any difference between the substance of the Eurogroup statement and his own letter on Thursday requesting an extension to the aid programme. An ECB source said that the bank's Governing Council was prepared to again accept Greek debt as collateral for the financing of banks once the process of extending the aid programme has been finalised and the programme properly completed. (Elodie Lamer)
Please find below the Eurogroup statement on Greece.