Two meetings of the Eurogroup will be held on Monday 5 December. In the morning, the finance ministers of the Eurozone will tackle the draft 2017 budgets of 18 countries and, in the afternoon, they will take stock of the third Greek bailout plan, with an envelope of €86 billion from the European Stability Mechanism (ESM).
When it kicked off the 'European Semester' budgetary process in mid-November (see EUROPE 11669), the European Commission flagged the risk that the draft 2017 budgets of eight Eurozone countries – Belgium, Cyprus, Spain, Finland, Italy, Lithuania, Portugal and Slovenia – could breach the rules of the Stability and Pact.
We expect the ministers of these eight countries to explain the measures they are planning to take and how they will apply them to comply with the Pact, a senior European official said on Wednesday 30 November.
Facing exceptional expenditure due to the constant arrival of migrants and rebuilding work following the destruction caused by a number of earthquakes, Italy has failed to meet its commitment to bring its deficit down to below 2% of GDP, but has not returned to an excessive deficit situation (see EUROPE 11657). The new Rajoy government in Spain will present a revised draft budget including corrective measures equivalent to €5 billion in order to comply with the deficit trajectory agreed at European level (-3.1% of GDP in 2017 and -2.2% in 2018).
On the other hand, the budgetary trajectory of the Eurozone, which the Commission has recommended be slightly expansionary at a level of 0.5% of GDP, will not be a subject of discussion at the Eurogroup at this stage. This symbolic stance, which asks Germany – without coming out and saying so – to spend more, has come under fire from the German minister, Wolfgang Schäuble, and the President of the Eurogroup, Jeroen Dijsselbloem (see EUROPE 11673) and will be discussed at the Ecofin Council. The subject will return to the ministers' table in January, as the recommendation for the Eurozone must be approved at the spring European Council.
Greece. On Monday afternoon, the ministers will take stock of the third Greek bailout plan, more specifically Greek debt relief, but without any haircut, and with conditional measures to make it possible to finalise the second monitoring mission of the aid plan (see EUROPE 11678). "I expect an agreement between the institutions of the EU and the Greek authorities before the end of 2016", the same senior European official said.
The ESM will present the ministers with three types of short-term measure which may be taken to relieve Greek government debt, which is set to culminate at 181.6% of GDP in 2016, according to the Commission. The bailout fund, which is the largest holder of Greek debt, examined three types of measure listed in the Eurogroup agreement of May (see EUROPE 11557): - modify the Greek debt reimbursement profile by adjusting the average maturity of Greek securities from 28 years to 32 years; - adopt measures aiming to cap the interest rate applied to the Greek debt; remove the provision (which is punitive for Greece) carried over from the second Greek aid plan, whereby the interest rate set for certain debt securities will increase from 2017 if Athens does not pay back enough of its debt through privatisations.
Relieving the Greek debt at a level of 20% by 2060, according to a document of which the Wall Street Journal has had sight, these measures, if approved, will not necessarily have to be applied straight away, but step by step until 2018, when the aid plan expires. However, the third measure is the most urgent one.
The question of the level of primary budgetary surplus (not including servicing of the debt) post 2018 will not be discussed on Monday. Along with the viability of Greek debt, this is one of the parameters that will determine the IMF's involvement in the third bailout plan for Athens, and the international financial organisation is due to take position on this by the end of the year. (Original version in French by Mathieu Bion)