Eurogroup: Structural Reforms as a lever for Growth
Already but reluctantly with an eye to the period following the European part of the Greek programme, as well as to ways of resuming the Eurozone’s missing growth, the informal Eurogroup of Milan was completed on 12 September. “Once the findings of this review become clear, the Eurogroup will return to this issue and start also to discuss a number of interrelated issues such as the arrangements to be put in place once the current programme expires which is at the end of the year”, said the head of the council of the finance ministers of the Eurozone, Jeroen Dijsselbloem, after the end of the meeting.
Despite the insistence of the Greek side not to seek additional funding in 2015, the European partners have made clear their intentions not to let a Eurozone member be funded solely by the IMF (the part of the programme that is related to the IMF is bound to continue until February 2016).
Furthermore, the latest monthly report of the ECB provides for a significant financial gap for Greece within 2015 and 2016. The Greek Finance Minister, Gikas Hardouvelis, when asked to comment on the above report, indicated that this gap is not considered important from the Greek point of view, whereas it is certainly something to be seen in the draft budget plan bound to be presented in October. He noted that this particular issue shall be discussed with the Troika in Athens.
According to the minister, the Troika is expected to be in Athens on 25 September, in order for the fifth review to begin. As he stated, in the informal Eurogroup the progress achieved by Greece was highlighted, especially with respect to the implementation of structural reforms; nevertheless, it was also stressed that the agenda of pending issues remains long.
In particular, the Greek Finance Minister reiterated to his counterparts the Greek position as it was put forward in Paris as well, according to which Greece has so far fulfilled 55% of its agreed obligations, while expressing his satisfaction with the preliminary discussions with the Troika on French soil.
On his part, the president of the EFSF, Klaus Regling, informed that € 1,8 bn. remains for Greece in the Hellenic Financial Stability Fund, along with another € 1,8 bn. from Securities Market Programmes (SMPs), i.e. Greek government bond holdings to ECB portfolios. He also pointed out, however, that the disbursement of these funds is -as usual- associated with the successful completion of the fifth review.
Finally, Mr. Gikas Hardouvelis said that the substantive discussions on the sustainability of the Greek debt shall only start after the stress-tests of the Greek banks, bound to take place in mid-October, while anticipating their actual completion either at the end of the year or early next year.
Commission: Fiscal Discipline, Structural Reforms and Attracting Investments
“Reducing expenses instead of increasing taxes and cutting current expenditure and not future investments, can ensure that fiscal consolidation will be growth-friendly”, said Jyrki Katainen during his debut speech from the position of European Commission Vice-President, responsible for Economic and Monetary Affairs and the Euro. The equation that the European leaders are called upon to solve is how to return to the long-awaited growth, at a time when the doctrine of tight fiscal policy shall continue to circumscribe the European economy. Former Prime Minister of Finland and advocate of austerity, Katainen talked about the need for a new policy mix, which not only fosters a stringent fiscal policy, but also attaches considerable importance to structural reforms as well as the strengthening of both private and public investments.
One of the steps towards this direction would be to reduce tax burden on labour. According to Mr. Jeroen Dijsselbloem, during the meeting of the Eurogroup the finance ministers of the Eurozone concluded with a draft text that presents a first set of common principles for implementing this measure. The text includes an explicit directive that provides for equivalent measures (in non-performing sectors) to compensate for the cost of this measure to the budget, while acknowledging the fact that the measure should be part of a broader remodeling of the labour market.
ECB President was also present at the press conference that followed the meeting of the Eurogroup. Once again, Mr. Mario Draghi sounded the alarm as regards the Eurozone, while pointing out that growth “froze” in the second quarter of 2014 after four consecutive quarters of recovery, whereas inflation reached 0,4%. As he characteristically said, the above characteristics indicate that the Eurozone recovery is still “fragile or even weak”. He also referred to the measures recently taken by the ECB to stimulate liquidity in the European market which, nevertheless, cannot yield any results unless the governments are determined to proceed to the structural changes indicated by the Commission so as to regain investors’ interest.
In the course of the debate on the implementation of structural reforms, Mr. Gikas Hardouvelis agreed that structural reforms are a tool that ought to be properly employed in order to jump-start the economy. Moreover, he also stressed that the sustainability of structural reforms is dependent upon acceptance among the citizens themselves, while explaining that in cases of countries severely affected by recession and the crisis, such as Greece, “it is important for the people to be able to take a breath, to see light at the end of the tunnel so as to accept then the need for reforms”.