The Greek authorities and their institutional lenders managed to finalise the second monitoring mission for the third Greek bailout in the evening of Thursday 15 June.
The political agreement has headed off a new crisis that could otherwise have been sparked by Greece defaulting on a payment due to blockage of an €8.5 billion batch of aid from the European Stability Mechanism (ESM).
Reacting to the promise of payment of the sum in early July, Greek Finance Minister Euclid Tsakalotos said his country could now see “light at the end of the tunnel”.
Broad package of reforms
The negotiations between Athens and its lenders were long-drawn out and difficult in recent months, aiming to finalise the second mentoring mission, but the meeting of the Eurogroup on Thursday, attended by IMF Director General Christine Lagarde, was relatively speedy.
Finalisation of the mission required prior adoption by the Greek authorities of a package of 140 priority social and economic measures, some of which will have a budgetary impact of the equivalent of 2% of GDP and will be introduced in 2019 and 2020, after the end of the aid plan (see EUROPE 11779).
The measures were welcomed by the head of the Eurogroup, Jeroen Dijsselbloem. They include social measures and stimulus measures to be applied to counterbalance the impact of the planned budget consolidation measures as long as Greece sticks to the post-bailout budget trajectory. The Eurogroup said it will support the Greek authorities in the creation of a national development bank to coordinate the implementation of development work. The reforms will be useful for the Greek economy, said German Finance Minister Wolfgang Schäuble, adding that the Eurogroup had managed to strike a “reasonable line”.
Like what was envisaged at the previous Eurogroup meeting on 22 May (see EUROPE 11807), the Greek government pledged to maintain a primary budget surplus (not including debt-servicing charges) of 3.5% of GDP from 2018 to 2022. From 2023 on, it pledges to keep a trajectory in line with the stability and growth pact. The European Commission says this pledge will require an average budget surplus of 2% of GDP in 2023-2060.
Needed to reimburse more than €7 billion to the ECB at the end of July, the €8.5 billion batch of aid will be disbursed in early July once approved by a number of eurozone parliaments. Of this sum, €6.9 billion will arrive on 7 July to reimburse debt and two sub-tranches of €800 million will be used cover payment arrears, said Klaus Regling, head of the ESM.
Spain, however, is threatening to block payment of the €8.5 billion. Spanish Economy Minister Luis de Guindos is demanding that the Greek authorities ensure immunity for three officials, one of whom is Spanish, who risk prison sentences for losses of several million euro caused by a report that the three wrote for the Greek privatisation fund, Hellenic Corporation of Assets.
Careful language about mid-term easing of Greek debt
The level of detail to be provided for the adoption in mid-2018, if necessary, of medium-term easing of the Greek debt was the main issue of tension among Greece’s various partners, particularly between the IMF and Germany.
On Thursday, the Eurogroup gave details that fleshed out the May 2016 statement while reiterating the conditional nature of such measures that will not foresee any direct write-down of debt held by Athens’ lenders (see EUROPE 11784 and 11557).
The measures may result in an extension of maturities, an extension in payment deadlines, including for EFSF loans in the second bailout. They still need to be properly calibrated so that the IMF can make a final decision on the payment of financial aid.
The ministers took on board a French proposal, confirmed by the Greek delegation after the meeting. The idea is to adjust the amount of debt to be reimbursed in line with economic growth in the country.
French minister Bruno Le Maire said that, since they had not been able to agree on provisional level of growth in Greece, they had proposed a very simple mechanism – if growth is better than foreseen, Greece will make reimbursements faster and vice versa. He said that the French proposal had nothing to do with a similar idea mooted by the former Greek finance minister Yanis Varoufakis since Varoufakis had suggested setting up a new financial instrument.
France is very keen on an agreement on Greece in order to head off any crisis so that, in mid-July, France and Germany can present proposals on deepening economic and monetary union (EMU). A diplomat pointed out that the Greek debt must not be allowed to make them miss the train of history.
IMF involvement agreed in principle
One knot to be untangled is the IMF’s involvement in the Greek bailout. Under its rules, the IMF cannot support a country if its debt is deemed viable, which it says is not the case for Greece.
Details provided by the Eurogroup about a possible future easing of the Greek debt (in mid-2018) seem to have won over the IMF and its director general, Christine Lagarde, said she would be recommending to its board that it endorse an aid programme for Greece in principle. It would have a budget of $2 billion and align with the remaining duration of the ESM’s third aid plan.
The IMF, however, will not disburse a cent until it has won guarantees about the scale of the Greek debt easing. Lagarde said the Eurogroup statement did not give any details of the sums involved such that a conclusion could be made under IMF parameters about the debt being viable, but she admitted that the 15 June agreement was a step forward. She added that the solution that had been found was a second-best solution, the best solution being immediate easing of the Greek debt, but it was not bad in the sense that it included reforms and major progress on easing of the debt in the medium-term.
Exit strategy
The Eurogroup said it wanted to support the Greek authorities to develop an exit strategy. “We will prepare an exit strategy to enable Greece to stand on its own two feet again in the course of next year”, said Dijsselbloem. As far as the Eurogroup is concerned, the next reimbursements should not only serve to pay back debt, but also to facilitate a return to the markets and restoring investor confidence. Nobody seemed able to respond on Thursday to the question of whether Greece would be able to have a preventive credit line at the ESM once it exits the bailout programme. (Original version in French by Lucas Tripoteau)