On Monday 20 August, Greece officially drew a line under the third and last three-year financial bailout plan it had been under since August 2015 (see EUROPE 11372).
Today “Greece has regained the control it fought for”, said the President of the Eurogroup, Mário Centeno, in a video message. Congratulating the Greeks on the efforts they have made, he nonetheless reminded the Greek authorities of the responsibility that will accompany the return to budgetary autonomy and warned against any return to the “bad policies of the past” that brought the country to the brink of bankruptcy.
Today marks the start of a new chapter for Greece, which had been under a third bailout plan since August 2015 following a crisis that piqued with former German finance minister, Wolfgang Schäuble, raising the possibility of the country being thrown out of the Eurozone.
No blank cheques. At the end of June, the Eurozone financial policy-makers agreed on the details to finalise this last financial assistance plan, but no blank cheques were handed over.
They agreed upon the payment of a final tranche of aid of €15 billion to the Greek authorities, allowing them to cover the immediate servicing of their debt and help to build up a cash buffer of €24.1 billion to ensure a soft landing for the country's return to the markets over the next two years.
Although the disbursement of this tranche of aid was delayed somewhat by the Bundestag, the lower house of the German parliament, it gave its green light on 1 August (see EUROPE 12076) and the €15 billion was paid over on Monday 6 August.
This means that over eight years, Greece will have received €288.7 billion from its institutional creditors, including €32.1 billion from the IMF in the first two bailout plans. In the third three-year aid plan, the European Stability Mechanism (ESM), the permanent bailout fund of the Eurozone, provided €61.9 billion.
In return, the Greeks were forced to carry out radical reforms of the administration and economy. These measures, which were applied with no loss of time, quickly led to a deep recession, losing a quarter of the country’s wealth over this period. Government debt, which is now 55% owned by the ESM and the provisional Eurozone bailout fund (EFSF), exploded to almost 180% of GDP, as did unemployment, which hit 27.5% of the active population in 2013.
Indicators in the green again. Without denying the problems still faced by the Greek population or the mistakes made by both Athens’ creditors and the Greek authorities, the Commissioner for Economic and Financial Affairs, Pierre Moscovici, hit back on Monday against a mistaken idea: it was not austerity that led to crisis in Greece, but the other way round.
He chose instead to highlight several positive elements of this period of the financial tutelage, the longest ever of its kind, arguing that the Greek economy is now built on solid foundations that will be conducive to growth and job creation.
Certainly, growth returned to Greece in 2017 and is expected to stand at around 2% of GDP in 2018 and 2019. For the first time since 2011, unemployment has fallen back below the 20% of the active population mark.
According to Moscovici, the Greek financial sector is far more robust with, in particular, a specific strategy to reabsorb non-performing bank loans. Public administration is more effective, with a transparent salary structure and recruitment based on merit and needs. The tax system has also been restructured, he added, to lay emphasis on fighting tax evasion and tax fraud. The country’s competitiveness, furthermore, has improved, so much so that Greece is becoming an attractive destination for investments.
When asked about the possibility that the government of Alexis Tsipras will decide, in early 2019, a few months ahead of the general elections, to reverse a measure that will reduce pensions further, the Commissioner said that he preferred to wait for the Greek draft budget for next year, which will be submitted to the European Commission by mid-October, along with the budgets of all Eurozone countries.
“We will see if there is a budgetary margin”, he commented.
Reinforced supervision. The fact remains that Greece is a case all of its own, in terms of both the duration and scope of its financial assistance. Its creditors will therefore carry out closer supervision of the country’s economic and budgetary policy in the first post-aid plan years.
Moscovici stresses that this is by no means a fourth bailout plan: “Greece will be free to define its economic policy within the framework agreed. The crisis was so much deeper, so supervision will be enhanced; but it will be much, much lighter than anything in a programme”, he stressed. He went on to say that he didn’t want “men in blue to follow the men in black”, referring to the experts of the international financial institutions charged with monitoring the implementation of bailout plans of Eurozone countries.
For the creditors of Athens, the aim will be to ensure that the commitments already made are stuck to. They will visit the country each quarter for a round-up meeting with the Greek authorities, with the first such mission scheduled for the week commencing Monday 10 September.
This means that up to 2022, Greece will come under Commission supervision described as ‘reinforced’, which will take the form of an examination of compliance with and implementation of the commitments made by Athens in terms of reforms and budgetary matters (see EUROPE 12060).
In particular, the Greek authorities will be required to maintain a primary fiscal surplus (not including servicing of the debt) of +3.5% of GDP until 2022 and of +2.2 of GDP on average up to 2060.
Athens has already hit this level of performance, but no other Eurozone country that has been in a bailout plan - Ireland, Portugal and Cyprus - has been subjected to this requirement. This, it would appear, is the price Greece must pay to be able to refinance its government debt on its own immediately after the end of the bailout plan (‘clean exit’), as the Eurozone countries listed above did.
Debt relief measures. To accompany Athens on the road to financial viability, the Eurozone creditors have taken a number of measures over the eight years of tutelage to reduce the burden of the debt. However, the red line of a haircut on the Greek securities held by the institutional creditors has never been crossed, for fears of rewarding a country for its excessive indebtedness.
This means that Greece’s private creditors were given a haircut of more than €100 billion in total in the framework of the second bailout plan.
In June, the plan was to extend the maturities of the EFSF loans by ten years, plus an additional moratorium, from 2022 to 2032, on the repayment of loans taken out with the EFSF.
Between now and 2022, Athens will also receive the profits made by the ECB and the national central banks under the ‘SMP’ and ‘ANFA’ operations to buy up the Greek government debt during the sovereign debt crisis. Additionally, the interest rate margins attached to the buyback tranche of Greek debt by the EFSF fund in the framework of the second bailout plan have been written off.
These two measures are, however, conditional on the implementation of reforms and compliance with the budgetary requirements in the framework of the Commission’s reinforced supervision.
IMF doubts. The convalescing Greek economy and fiscal situation continued to raise questions.
At the end of July, the IMF expressed its concerns as to the relevance and effectiveness of these long-term debt relief measures (see EUROPE 12074).
Through its spokesperson, Mina Andreeva, the Commission replied that the measures agreed upon were sufficient for the time being, reiterating that a revision clause would allow the parties to take stock and, if necessary, to consider new measures in 2032 (see EUROPE 12075). (Original version in French by Lucas Tripoteau and Mathieu Bion with Marion Fontana)