Brussels, 13/05/2016 (Agence Europe) - Discussions between Athens and its creditors on the budgetary brake, to be applied by Athens only if it deviates from the budgetary trajectory laid down, will be finalised and the mechanism formally approved by the Greek parliament before the first monitoring mission of the third bailout plan is successfully put to bed at the Eurogroup meeting of Tuesday 24 May.
On Monday 9 May, the finance ministers of the euro zone supported the approach suggested by the Greek government, whereby a budgetary mechanism will be brought into Greek law and applied if Athens fails to comply with its budgetary trajectory between now and 2018, namely a primary budgetary surplus (not including servicing of the debt) of 0.5% of GDP in 2016, 1.75% in 2017 and 3.5% in 2018 (see EUROPE 11547).
A mechanism generating savings or revenue collection (contingency measures) equivalent to 2% of Greek GDP has been called for by the IMF, which does not believe that Greece can stick to the budgetary trajectory agreed upon. This is one of the conditions the organisation has set for its participation in the bailout plan.
Invoking the fact that it is not possible under Greek law to legislate in a detailed manner on an ex-ante basis, the Greeks have proposed to create a cross-cutting regulation which may lead to expenditure cuts, other than in the defence sector. “It will be a general regulation which will facilitate presidential decrees in the event that an adjustment is necessary”, a Greek source confirmed. The budgetary brake will be automatically activated on the basis of the Greek budgetary performances confirmed by the statistical office of the EU (Eurostat).
“There is no definitive agreement on the details of this mechanism”, a European source close to the negotiations said on Friday 13 May, adding that the negotiations will continue over the weekend before the text is voted on by the Greek parliament next week. The source went on to say that at this stage, “it is not clear” whether the embryonic mechanism will allow for corrections of “structural” deviations rather than just conjunctural ones. Furthermore, the planned mechanism will not specify detailed measures ex ante.
In order to obtain the political green light of the Eurogroup so that a further tranche of aid can be paid, the Greek authorities must have completed all of the prior measures agreed upon, as well as create the budgetary brake. These measures include the adoption of the budgetary package equivalent to 3% of Greek GDP and a restructuring strategy for non-performing bank loans. Between now and 24 May, the governance structure of the privatisation fund must also have been approved so that it can be up and running from September. The privatisation fund, which will be established in Greece and managed by the Greeks themselves, will aim to privatise around €6 billion' worth of assets up to 2018, encourage private share ownership in state companies and make a proportion of the vast Greek land heritage economically profitable.
The amount of the tranche of aid to be paid to Greece will depend on when the second monitoring mission of the bailout plan launches. Although the date has been set for October, the servicing of the Greek debt is in the neighbourhood of €6 to €7 billion, according to this European source. This source went on to stress the importance of helping the Greeks to overcome their payment arrears, which stand at €7 billion, in order to inject cash into the economy. “This is one of the most important decisions the Eurogroup will have to make”, the source stressed. (Original version in French by Mathieu Bion)