Brussels, 09/05/2016 (Agence Europe) - On Monday 9 May, the eurozone finance ministers made progress on the two most controversial planks of the negotiations between Athens and its institutional creditors, namely a package of contingency measures to be applied in the event of budgetary deviation and a possible rescheduling of the Greek debt.
A political agreement of the Eurogroup on these two issues, on Tuesday 24 May, would lead to a positive conclusion of the first monitoring mission of the third Greek bailout plan of €86 billion from the European Stability Mechanism (ESM). It would pave the way for the disbursement of a further tranche of financial aid to Greece, to allow the country to honour its commitments.
We anticipate that “by 24 May”, the “three pieces of the jigsaw puzzle” - structural budgetary reforms, the conditional mechanism and discussions on the debt - will be in place for a positive outcome of the first monitoring mission, said the Greek minister, Euclide Tsakalotos.
In its statement, the Eurogroup welcomes the measures equivalent to 3% of GDP that Athens will set in place in order to comply with the objective of the primary budgetary surplus (not including servicing of the debt) of 3.5% of GDP by 2018 (0.5% in 2016, 1.75% in 2017 and 3.5% in 2018). The pensions and income tax reforms voted through by the Greek parliament the day before are part of this package. “This paves the way for a positive outcome of the first monitoring mission”, said the president of the Eurogroup, Jeroen Dijsselbloem. He also referred to the management mechanism for non-performing loans and the creation of a privatisation fund, which should be in place “by September at the latest”.
To reassure the IMF, Greece will have to set in place a mechanism of conditional measures equivalent to 2% of GDP, to be applied only if it does not achieve the required budgetary surplus in 2018. This mechanism must be “voted through ahead of time”, Dijsselbloem said. “With the benefit of reassuring partners of the credibility of the commitments made”, this mechanism must be “objective, enacted in advance, credible and automatic”, added the commissioner for economic and financial affairs, Pierre Moscovici.
Ministers have adopted, and tightened up, the Greek proposal for a contingency mechanism providing for cross-cutting budgetary cuts. There may also be “structural” measures and revenue measures, Dijsselbloem said. He went on to say that the Greek parliament would have to enshrine the mechanism, without necessarily going into details in advance on the measures that may have to be adopted. According to Tsakalotos, the embryonic mechanism will work on an annual basis and will be based on the Greek budgetary performances certified by Eurostat in May of each year. The measures will be taken on the basis of any difference between these results and the agreed budgetary trajectory over the following four months and applied in the framework of the following year's budget. The Europeans do not feel that this mechanism is necessary, because Greece is already ahead of its budgetary objectives.
Discussions on the Greek debt in three stages. No decision was made on Monday regarding the exact measures for Greek debt relief. Even so, the Eurogroup discussed the dossier, which is extremely important to Athens, for the first time in the framework of the third bailout plan. Securing a restructuring of the debt, without crossing the red line of a haircut on the Greek securities, would help to sugar the pill of the reforms.
“As (Greece) has fulfilled its commitments, and this is extremely important as this is the very first time, we are starting real talks on sustainability of the debt. This is what is different about this meeting, although it has been promised several times”, said the French minister, Michel Sapin, adding that it is important to “give Greece back visibility and stability markets”.
The Eurogroup takes the view that the discussions should be divided into three stages, using the servicing of the Greek debt as benchmark, rather than its weight in relation to national GDP. In the short term, the euro working group will discuss measures to optimise the management of the Greek debt, which is now held principally by the European Stability Mechanism (ESM), the bailout fund of the eurozone. In the medium term, they will identify other relief measures to be taken by the time the Greek bailout plan ends in 2018. Dijsselbloem referred to the grace period during which Greece will not pay back certain loans, and the use of the profits made by the ECB on certain Greek securities in the framework of the SMP programme for the buyback of sovereign bonds. Lastly, other measures will be possible in the longer term, to spread out the impact of the repayment peaks.
“It is a great relief we had this debate”, Tsakalotos said, adding that all parties around the table want to work towards a political agreement on 24 May, which also includes the question of the debt. Dijsselbloem stressed that the IMF was “satisfied” with the three-stage approach decided upon. According to Sapin, the IMF “has expressed requirements and misgivings, but is on board” and “awaits the conclusions on the debt before getting involved”. (Original version in French by Mathieu Bion and Maëlle Didion)