Brussels, 19/05/2016 (Agence Europe) - On Tuesday 24 May, eurozone finance ministers are expected to finalise the first monitoring mission of the third three-year Greek bailout programme, worth €86 billion, a finalisation which will pave the way for the payment of a new batch of financial aid.
The Greek finance minister, Euclide Tsakalotos, will brief ministers on the recent prior actions that the government submitted to the Greek parliament on Wednesday 18 May and which the parliamentarians are due to approve on Sunday. Alongside pension and income tax reforms already adopted in early May, the reforms include an increase in indirect taxation (raising VAT to 24%), creating a market for bad bank loans and establishing a privatisation and monetization fund for Greek real estate. The Greek MPs are also expected to endorse new contingency measures, including one-off budget and structural measures equivalent to 2% of GDP that will only be put into action if the trajectory due to lead to a primary budget surplus (not including debt servicing costs) of 3.5% of GDP in 2018 is not respected (see EUROPE 11551).
Legally speaking, adopting all these prior actions would be enough in itself to mark the end of the first monitoring mission for the third Greek bailout, but politically speaking, Greece is expecting a strong signal from the Eurogroup about easing of its public debt, which the European Commission says will overshoot 180% of GDP this year. We are working on a broad solution, a European source explained on Tuesday, saying that a positive outcome would be difficult, but was not out of reach.
On the question of the Greek debt, the ministers will resume their talks on the basis set at their special meeting on 9 May. Rejecting the idea of any devaluation of Greek bonds, two-thirds of which are owned by other eurozone nations either directly or via the European Stability Mechanism (ESM), they will discuss possible measures to take immediately, in 2018 when Greece fully returns to the markets, and also longer-term measures to keep annual refinancing costs for the country's debt at below 15% of GDP (see EUROPE 11547). Will the establishment of a roadmap of various conditional stages to be validated by the parliaments of countries that require it be enough for Greece to justify a final burst of budget belt-tightening?
In its analysis of the viability of the Greek debt, the IMF does not believe Athens will be able to meet the budget trajectory and suggests an immediate rescheduling of the debt, including a moratorium on the reimbursements laid down until 2040, extending the maturity of some loans to 2080 and setting interest rates at the current level of 1.5%, reveals the WSJ. Such moves are deemed over-ambitious by countries like Germany that are resistant to the idea of easing the Greek debt burden, which would require the Bundestag's approval before the end of the three-year bailout in 2018 and therefore before the German general elections in 2017. Berlin wants the possible agreement to be reached on Tuesday 24 May to pave the way for formal involvement of the IMF in the third bailout, a formal decision on the IMF's involvement being expected before the summer break. Discussions about the Greek debt are expected to take place on the fringes of the G7 Finance summit in Japan on 20 and 21 May.
Ministers are also expected to decide on the size of the next batch of financial aid to be granted to Athens. Alongside the timeline for reimbursement of the €3.5 billion batches of bonds held by the IMF and ECB that are reaching maturity, they are expected to indicate that they will help the Greek state absorb payment arrears to the economy, which the Commission says total €6 billion.
Other business. Eurogroup will examine the situation in the eurozone based on the European Commission's Spring Forecasts, which expect growth of 1.6% of GDP in the eurozone in 2016 and 1.8% in 2017 (see EUROPE 11545). The ministers will be informed about the social and economic country-specific recommendations that the Commission sent out on Wednesday 18 May. The recommendations suggest giving Spain and Portugal an extra year (2017 and 2016 respectively) to reduce their public deficit to below the 3% of GDP cut-off point, and allowing Italy, which is in the preventative arm of the Stability and Growth Pact, to make use of the flexibility foreseen in EU budget rules (see EUROPE 11553). The ministers will be briefed on the outcome of the fifth post-ESM programme monitoring mission that took place in Madrid in April and that says that there is no risk of the country failing to reimburse the ESM loans. (Original version in French by Mathieu Bion)