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Nikos Chrysoloras: Evaluation, but not without Asterisks

The mission of the Troika in Athens concluded its review of the Greek adjustment programme on Monday, April 15. However, this development does not necessarily secure the disbursement of the sub-tranche of March, worth 2,8 billion, given that the necessary “milestone” has not been fulfilled yet; namely, the drafting of organisation charts by every ministry, where clearly defined quarterly goals will be set for the mandatory exit of civil servants between June and late 2014. As it was pointed out in a joint statement by the European Commission, the European Central Bank and the International Monetary fund, “milestones are likely to be achieved in the near future and hence the disbursement of the related €2.8bn from the EFSF tranche remaining from the previous Review could be agreed soon by the Euro area Member States”. In addition, the statement reiterates that the agreed measures for the period 2013-14, such as the provision for the collection -through the Public Power Corporation (DEI)- of the Tax on Surfaces connected to the National Electricity Network, have not yet been fully implemented, although the government appears determined to implement them.

The Troika retains its basic projections for the evolution of macroeconomic aggregates, whereas it expects a gradual return to positive growth rates from 2013 onwards, due to reforms that “improve wage flexibility” and are “supported by inflation well below the euro area average”. Furthermore, the dynamics of public debt are well within projections, although our auditors reiterate that its long-term viability depends, to a large extent, on the additional measures of assistance that the Member-States of the Eurozone have committed themselves to adopting, once Greece achieves primary surplus.

Finally, with regard to the safety of deposits, the statement on the conclusion of the review mission stresses that the 50 billion available under the Programme are fully sufficient to meet the capital needs of banks, even in the most extreme scenario, thus ensuring the stability of the financial sector in our country. This particular reference to the safety of deposits, the first of its kind to be mentioned in an evaluation report, is not accidental; given that the dramatic decisions taken concerning Cyprus, combined with the ongoing discussions on a single European framework for the liquidation of banks, have redoubled fears of a new wave of capital withdrawal from the South.

The informal Eurogroup that was held in Dublin on April 12 deferred, until June, the completion of negotiations on the direct recapitalization of banks through the European Stability Mechanism (ESM), as well as on the banking consolidation of the Eurozone. However, the legislative proposal, which was submitted by the Commission for the management of bank failures from 2015 onwards, provides that in such cases the claims of bondholders and shareholders are the ones to be deleted first. “The first to pay will be the shareholders of the bank, followed by investors and, hence, bondholders. In case that this procedure proves insufficient, the depositors whose deposits exceed 100,000 € will be asked to participate”. Furthermore, the capital will derive from future national bank-resolution funds, where all banks will be bound to contribute,” said the European Commissioner for Internal Market and Services, Michel Barnier, in an interview with the newspaper Süddeutsche Zeitung. Thus, it becomes evident that the proposal that is currently on the table requires that the intervention of the ESM will be a last resort solution regarding that all other alternatives have been exhausted. Undoubtedly, this is a negative development, considering that following the decision of the Summit of June 29 2012, expectations were raised as to the direct recapitalization of banks from the ESM, which would “break” the vicious circle that links bank and national debts and contribute to restoring confidence in the European banking system. Since then, however, the “bar” of expectations has been lowered considerably, since the states of the North have resorted to the thesis that their aim is “never to use the tool of direct recapitalization”. In any case, we shall underline here that, in accordance with European legislation, deposits up to 100,000 € per bank are fully protected.