Amsterdam, 22/04/2016 (Agence Europe) - Greece and its institutional creditors have made enough significant progress for a political agreement to be in sight, possibly next Thursday, on the budgetary measures and structural reforms that Athens will have to apply and provide for a reprofiling of the Greek debt in the event of a setback.
“We are very close” to an agreement in the framework of the first monitoring mission of the third week bailout plan, said the President of the Eurogroup, Jeroen Dijsselbloem, following the meeting of the ministers in Amsterdam. He said that there was very nearly an agreement on the package of budgetary measures (e.g. reform of income tax) equivalent to 3% of Greek GDP and the structural reforms (e.g. pensions, treatment of non-performing bank loans, privatisation fund). Additionally, a package of contingency budgetary measures worth “2% of GDP” is also being drawn up and will apply “only if needs be”, in other words if the objective of a primary budgetary surplus (not including servicing of the debt) of 3.5% of GDP is not achieved in 2018. If we have “credible” contingency measures, voted on in advance and more or less automatic, “we can have a further Eurogroup meeting next Thursday, but it is not sure yet”, Dijsselbloem pronounced. Between now and then, work will resume in Athens at technical level.
The drafting of a package of contingency measures has been called for by the IMF, which believes that the first package of budgetary and structural reforms will allow Athens to achieve a lesser primary budgetary surplus in 2018, in the order of 1.5% of GDP.
This condition for the first monitoring mission of the bailout plan to be concluded has been accepted by the 'institutions' (European Commission, ECB, IMF and ESM). These measures will help to “reassure creditors and investors for the years to come”, said the Commissioner for Economic and Financial affairs, Pierre Moscovici. The Executive Director of the European Stability Mechanism (ESM), Klaus Regling, has made this a “precondition” for discussions on the Greek debt. According to Dijsselbloem, better than anticipated Greek budgetary performances reduce the likelihood of having to apply the contingency measures.
On Thursday, the statistical office of the EU (Eurostat) reported a Greek primary budgetary surplus of 0.7% of GDP in 2015, better than the target of 0.25% laid down. These figures contradict the position of the IMF, which states that it is prepared to review its scenario further to an examination and if these data are not revised.
The Greek finance minister, Euclide Tsakalotos, warned against excessive optimism. “In Greek law, you cannot legislate contingently. In French law as well”, he said, referring to a discussion on the issue with the French minister, Michel Sapin. However, he said that there were “many ideas” on the table to respond to the creditors' expectations.
Reduction of Greek debt also under discussion
Legally, the green light to any further payment of aid depends on an agreement on the two packages of budgetary measures. Politically, however, the first monitoring mission will end only if an agreement is reached on a reprofiling of the Greek debt, which will exclude any haircut on the nominal value of the sovereign securities. The 'institutions' have therefore been given a mandate to carry out a new analysis of the viability of the Greek debt, which is now held mostly by the ESM.
“For overall consistency and to get everybody on board”, a discussion on the Greek debt is required, said Moscovici. “To get an agreement on the contingency measures, an agreement on the debt is needed. You know the IMF's position”, Dijsselbloem added.
The IMF has indeed set a reduction of the Greek debt as a condition for its involvement in the third Greek bailout plan. “The discussion has started. In the coming days or weeks, we need the elements and conditions related to the issue of the debt to be decided upon”, said the IMF boss, Christine Lagarde. She went on to say that commitments leading to a reduction of the Greek debt (through an extension of the moratorium on reimbursement and/or an extension of maturities) could be made, subject to a conditional rescheduling mechanism and applied when absolutely necessary.
During these discussions, which will take place in parallel, we will see whether the pressure the IMF is bringing to bear upon Greece to take contingency measures and on the creditors to be more generous is “really symmetrical”, observed Tsakalotos.
A European diplomatic source said that this political turnaround regarding the Greek debt is related to the noteworthy efforts made recently by the Greek government and a recognition of the fact that the country is facing an extremely tough situation with huge waves of migrants arriving. “Nobody wants to play the game of giving the Greeks extra difficulties” under these circumstances, he said.
“Politically, what has to be remembered is that we've broken the deadlock on the debt issue. Nobody objected, even though there were some reservations”, said French minister Michel Sapin. (Original version in French by Mathieu Bion)