The finalisation of the second monitoring mission of the third Greek bailout plan will be central to the discussions of the finance ministers of the Eurozone, in Brussels on Monday 22 May.
The adoption of social and economic reforms for 2019 and 2020, as agreed in Athens in early May between the representatives of the ‘institutions’ (European Commission, ECB, IMF, ESM) and the Greek government (see EUROPE 11779), will precede the negotiations on other subjects (post-2018 budgetary trajectory and medium-term relief measures for the Greek debt) necessary for the finalisation of this monitoring mission of the three-year bailout plan, with a budget of €86 billion from the European Stability Mechanism.
Despite the general strike in Greece, the package of reforms was voted through in the night of Thursday 18 to Friday 19 May by the Vouli (Greek parliament). The European Commission welcomed this move on Friday 19 May.
Readers may recall that the Greek authorities had committed to a reforms package equivalent to 2% of GDP - pensions reform (1%) in 2019 and expanding the tax base on personal income (1%) in 2020. These budgetary consolidation measures will be offset by other social measures or those aiming to boost the growth desired by the Greek government, which will be applied only if Athens complies with its budgetary commitments post-2018.
Post-2018 budgetary trajectory still to be defined
The problem of the Greek budgetary trajectory beyond 2018 is also crucial for the finalisation of the second monitoring mission. The aid plan requires Greece to achieve a primary budgetary surplus (not including servicing of the debt) of 3.5% of GDP for 2018 and beyond and it is already meeting this target (+4.2% for 2016). No post-2018 target has as yet been made official, in terms either of level or duration.
Greece and the ‘institutions’ seem to have agreed on the objective of a primary budgetary surplus of 3.5% of GDP up to 2021 (see EUROPE 11784). According to a diplomatic source, this matter will not, by some margin, be the hardest issue to resolve at the Eurogroup meeting of 22 May.
IMF participation conditional on debt relief
The most sensitive point in the finalisation of the second monitoring mission undoubtedly concerns the medium-term Greek debt relief measures.
Jeroen Dijsselbloem, President of the Eurogroup, has moreover said several times that this finalisation should be accompanied by a discussion on such measures to be applied in 2018 if necessary (see EUROPE 11784). In the spring economic forecasts presented on 11 May, the Commission predicted that Greek debt would represent 174.6% of GDP in 2018.
The Eurogroup declaration of May 2016 provides for three types of measure (see EUROPE 11557), namely: - reducing the interest rate on debt instruments; - handing over to Athens the profits made by the national central banks and the ECB on the Greek debt instruments held in the framework of the 'SMP' programme for the mass buyback of sovereign securities; - using an unused envelope of the ESM to pay back existing loans early to bring down interest rates and increased maturities.
“All of the ambiguity lies in the degree of precision”, a second diplomatic source said on Friday. The Eurogroup will need to find wording that satisfies the diverging interests of Greece, the IMF and the Eurozone countries that are reluctant to do Athens too much of a favour.
This matter was certainly the subject of a battle between the International Monetary Fund (IMF) and Germany, as this second diplomatic source confirmed to EUROPE. The IMF’s financial participation in the third Greek bailout plan is conditional on the viability of the Greek debt and the international institution is calling for specific commitments on the debt in the medium term. As for Germany, there is reluctance to make binding commitments before the general elections of September.
If the Eurogroup is satisfied with the prior measures adopted by the Greek parliament, approves the Greek budgetary trajectory post-2018 and comes up with satisfactory wording on the medium-term Greek debt relief measures, it will be able to decide to release a further tranche of financial aid, in Luxembourg in mid-June.
Subject to the subsequent approval of the parliaments of the Eurozone countries that so require, the Greek government will then be in a position to deal with a reimbursement peak of more than €7 billion to the ECB in July. The tranche of aid will also be used to settle the Greek state’s payment arrears. (Original version in French by Lucas Tripoteau)