With the possibility that a further tranche of aid will be paid to Athens in February, the institutional creditors of Greece and the government of Alexis Tsipras are working together to end the third bailout plan in August of this year. This would mark the end of a seven-year process - Greece was put under the protection of the Eurozone and the IMF in 2010 - which has highlighted the shortcomings of Economic and Monetary Union and come close to bringing the Eurozone to collapse several times.
“We are about to conclude the third programme review and we are entering the last phase of the fiscal adjustment programme” said Tsipras, who could not hide his optimism at the meeting of his Council of Ministers on Monday 8 January. The Greek authorities and the country’s institutional creditors are indeed expected to conclude the third monitoring mission of the third Greek bailout plan in the next few days, in order to come out of the three-year old plan with a maximum envelope of €86 billion from the European Stability Mechanism (ESM), the permanent bailout fund of the Eurozone, by mid-August.
In order to do this, the Vouli, the Greek single-chamber parliament, must first of all approve a raft of priority socio-economic measures, including reforms of the social security and education systems, plus a liberalisation of the energy market (see EUROPE 11918). It was with a view to this that proposals were submitted to the Tsipras government on Tuesday 9 January, ahead of a vote on Monday 15 January. The aim is to invite the Eurogroup, which will be chaired by Mário Centeno (see EUROPE 11918) for the first time on Monday 22 January, to give its blessing to paying out a further tranche of aid in the framework of the financial assistance programme (see EUROPE 11917).
Two questions still outstanding. Despite this strong optimism, a number of questions are still unanswered.
The possibility of a clean exit from the programme, which would allow Greece finally to finance itself on the financial markets, has still not been agreed upon, despite the optimism expressed in autumn of last year (see EUROPE 11870). An exit strategy will have to be agreed upon and implemented in the first half of this year, as Athens will not be in a position to benefit from the ECB’s quantitative easing programme for the mass buyback of public securities, which will conclude at the end of 2018.
Should a post-bailout plan accompaniment prove necessary, Athens may be able to negotiate a preventative line of credit from the ESM, to be activated only if necessary. However, a budgetary lifeline of this kind would come at a cost in terms of the conditional measures to be adopted in return. With general elections scheduled for 2019, it would also have a political cost for the Greek government. Even though the third bailout plan got off to a shaky start due to the stand-off lost by Tsipras against his European partners, he is still hoping to show the Greek people that their country is back on an even keel.
Another matter to be put to bed is the IMF’s involvement in the bailout plan. Christine Lagarde, the Director of the International Monetary Fund (IMF), secured a number of guarantees from her governing council in July of last year (see EUROPE 11835), but IMF involvement is still not a done deal. It is making it conditional on medium-term Greek debt relief measures (see EUROPE 11810).
A few months ago, such debt relief measures looked a long way from being agreed upon, with Wolfgang Schäuble, the former German finance minister, taking a tough line towards Athens (see EUROPE 11850). However, with German Chancellor Angela Merkel struggling to form a Federal government (see EUROPE 11908), any measures that may need to be adopted on the Greek debt when finalising the third aid plan seem more of a possibility today. If they could be pushed through, the IMF could unlock €1.6 billion, far less than it provided in the first two bailout programmes (€30 billion in the first and €28 billion for the second).
In any event, the end of this third bailout plan will not mean an end to Athens’ budgetary efforts. Far from it, since the meetings of the Eurogroup of 22 May and 15 June of last year led to Greece’s institutional creditors placing a requirement on the country to maintain a primary budgetary surplus (not including servicing the debt) of +3.5% of GDP between 2018 and 2022, and of +2% of GDP on average up to 2060 (see EUROPE 11807).
Good news on the economic front. The finalisation work currently underway on the third Greek bailout plan is being carried out in a positive macroeconomic context for the Eurozone. The Greek economy, whilst by no means flourishing, is once again in a positive cycle. The Greek authorities managed to achieve a primary budgetary surplus of 4.2% of GDP in 2016 (see EUROPE 11786), a much higher level than anticipated (0.5% of GDP), with the surplus expected to stand at 2.2% of GDP in 2017 (see EUROPE 11874).
The growth of the green economy is expected to stand at 1.8% of Greek GDP for 2017. In its economic forecasts, European Commission predicted growth of 2.5% of GDP in 2018. Unemployment, moreover, is down and expected to fall below 20% this year.
More good news to be chalked up: the Council of the EU also made a decision, on 25 September 2017, to bring Greece out of the excessive deficit procedure (see EUROPE 11869). Today, only France and Spain remain under this procedure.
Finally, the first signals sent out by the financial markets when Athens issued medium-term bonds on 25 July of last year were positive (see EUROPE 11836). Indicating a return to confidence on the part of investors, the theoretical interest rates on Greek ten-year bonds were below 4% for the first time since 2016 at the beginning of January. (Original version in French by Lucas Tripoteau and Mathieu Bion)