On Monday 20 February, Greece and its institutional creditors reached an agreement on putting together a substantial package of structural reforms designed to convince the IMF to take part in the third Greek bailout plan.
A “full agreement” has been reached between the 'institutions' (European Commission, ECB, IMF and ESM) and Greece on a “substantial package of reforms” that aims to be to the liking of the IMF, and this agreement will allow the experts to return to Athens to continue negotiations with the Greek government, the President of the Eurogroup, Jeroen Dijsselbloem, announced after the meeting of the Eurogroup.
This package, the scale of which in budgetary terms will be calculated at the end of the second monitoring mission of the bailout plan, will include fiscal measures and will cover the pensions system and the employment market. In particular, Athens will be able to restore the collective agreements to full functioning “in line with best EU practices”, stressed Dijsselbloem. The timetable and conditions attached to this measure have still to be finalised.
The idea now being pushed by the creditors of Athens is to devise in-depth structural reforms conducive to freeing up new budgetary margins, which could then be reinjected into the Greek economy by means of other measures jointly agreed upon between Athens and its creditors. “Greece has come out of the spiral of austerity”, the French finance minister, Michel Sapin, said.
A better than anticipated budgetary situation
The Eurogroup noted that the situation in Greece is better than anticipated. According to the Commissioner for Economic and Financial Affairs, Pierre Moscovici, the primary budgetary surplus (not including servicing of the debt) - above 2% of GDP - exceeded the target set for 2016 in that year (+0.5% of GDP) and has probably already exceeded the 2017 target (+1.75%).
This situation will do much to reassure Athens' creditors, which would also like to know ex ante how the Greek government intends to recycle its primary budgetary surpluses and stay within the objectives laid down (+3.5% of GDP in 2018).
Once the experts and the Greek government have defined the outlines of the embryonic package of measures, the Eurogroup will discuss medium-term debt relief measures on the basis of the political agreement reached in May 2016, Dijsselbloem promised (see EUROPE 11557).
The nineteen will also have to clarify what is meant by maintaining a primary budgetary surplus in the medium term beyond mid-2018 (+3.5% of GDP at least? For how long?), once Greece has left the bailout plan. The aim is to make this trajectory more realistic, said Dijsselbloem. “On this point, my feeling is that things are more relaxed, due to the return of budgetary credibility in Greece”, Sapin observed.
As for the timetable, the Eurogroup declined to set a target for the finalisation of the second monitoring mission of the Greek bailout plan, which will open the door to further disbursements to allow Athens to honour a debt repayment peak in July. The sooner the better, particularly in order to allow the government to clear payment backlogs that are punishing the Greek economy, said Klaus Regling, the Managing Director of the European Stability Mechanism (ESM), who has been re-elected to his position for another five years.
On Monday, ESM announced that it had received a repayment of €2 billion from the Greek government. This payment, which was contractually required, follows the divestment by the National Bank of Greece, one of the Greek banks subject to the recapitalisation of the banking sector carried out in 2015, of its Turkish subsidiary Finansbank to Qatar National Bank. “This is a sign that the restructuring of the Greek banking sector is progressing well”, said the Managing Director of the ESM, Klaus Regling. In the framework of the third Greek bailout plan, the ESM financed the restructuring of the Greek banking sector to the amount of €5.4 billion, with an envelope of €25 billion having been mobilised for this purpose. (Original version in French by Mathieu Bion)