Brussels, 25/05/2016 (Agence Europe) - It took the finance ministers of the Eurozone more than ten hours of negotiations to put the finishing touches, in the early hours of Wednesday 25 May, to the first monitoring mission of the third Greek bailout plan with its envelope of €86 billion from the European Stability Mechanism (ESM).
“We now have full agreement. It's a very important moment: confidence has begun to recover”, said the President of the Eurogroup, Jeroen Dijsselbloem, who paid tribute to Greece's “highly constructive” involvement. According to one source, the talks took longer than anticipated because, in simple terms, the Europeans expected the IMF to agree to possible Greek debt relief measures.
The Eurogroup reviewed all of the prior budgetary measures and reforms adopted by the Greek parliament (EUROPE 11556). In particular, it approved the budgetary contingency mechanism to be activated only if Athens ceases to comply with the trajectory that would lead it to a primary budgetary surplus (not including servicing of the debt) of 3.5% of GDP in 2018. The Commissioner for Economic Affairs, Pierre Moscovici, described this mechanism, which will spare social and defence expenditure, as “credible”.
Subject to a few technical clarifications that will come further down the line, the Eurogroup will make available a tranche of €10.3 billion, which will allow Greece to function until the autumn, honour its financial commitments and inject cash into the economy. This will help us to “mitigate some of the recessionary impact of the measures we've taken”, said the Greek minister, Euclide Tsakalatos.
Of this envelope, €7.8 billion will be paid in mid-June, subject to the green light of the national parliaments of the countries in which this is a requirement, and €2.5 billion in early September. The director of the ESM, Klaus Regling, the said that the preconditions for the September payment had been set in place and will concern the creation of the privatisation fund, the governance of the banking system, the revenue collection agency and the liberalisation of the energy sector.
Unquantified debt relief
A political agreement on further relief of the Greek public debt was not legally required for the finalisation of the first monitoring mission. Nonetheless, in order to allow the IMF to come on board the bailout plan and to give Athens a 'victory' to hail back home, the Eurogroup specified a number of measures which are likely to help Athens to refinance its debt on its own after 2018, but do not go as far as a haircut on the Greek securities. Nearly 65% of these securities are now held by the Eurozone countries, either directly or via the ESM.
Some measures may be taken immediately, for instance by playing on the interest rates, and will not require the rubber stamps of national parliaments such as the German Bundestag. In mid-2018, assuming that Greece has successfully completed its bailout plan, other measures may be taken, such as a 'reprofiling' of the debt (grace periods, lengthening the maturities) and a transfer of the profits (€1.8 billion) held by the ECB in the framework of the 'SMP' programme. For this, they are likely to need the specific approval of the national parliaments in the countries which have this requirement. Lastly, an optional contingency mechanism may be activated to guarantee the longer-term viability of the debt, as long as Greece sticks to its commitments under the Stability and Growth Pact.
One thing that is missing is the fact that neither the Europeans nor the IMF were in a position, on Wednesday morning, to put a figure to the number of billions of euros that Greece would be able to save as a result of debt relief. It will all depend on the parameters ultimately decided upon. 'There is little time, I would never have dreamt of such ambitious measures', Dijsselbloem commented.
Despite this haziness over the benefits to be anticipated from Greek debt relief, the IMF representative, Poul Thomsen, said that he was pleased to note that “the Europeans are acknowledging that the Greek debt is not viable”. He highlighted the concessions made by the financial organisation, which had wanted the recommended measures to be finalised upfront rather than in 2018, when the Greek plan comes to an end. The expert said that he would make a recommendation to the board of the IMF to take part in the bailout plan - a decision not expected before the end of this year - as long as a further debt sustainability analysis proves that the recommended measures are making the Greek debt viable.
See: http://www.consilium.europa.eu/fr/press/press-releases/2016/05/24-eurogroup-statement-greece/ (original in French by Mathieu Bion)