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Nikos Chrysoloras: Towards a Third Program of Financial Assistance for Greece

The Greek program is faced with a new stalemate, as recorded officially by the Eurogroup held in Luxemburg, on June 20. The reason is twofold: first, all evidence suggests that the Greek side has declared inability to fulfill its obligations relating to mobility in the public sector by the end of June, so that the ongoing evaluation of the Troika can be completed successfully. Given the delay caused by the governmental crisis in Greece, the most likely scenario is that the government will seek to “break” this particular prerequisite for the payment of the next installment into two distinct stages, so that the mobility requirement can be moved to September. However, there is no guarantee that the request will be accepted.

In any case, the main problem is the “official” identification of a financing gap in the Greek program for the second half of 2014. As a result, the International Monetary Fund will have to discontinue the funding of Greece from September onwards, since its statute requires -as a precondition for the participation of the Fund in a program- that the financing of this program has been secured for the next 12 months. Hence, the Head of the Eurogroup, Jeroen Dijsselbloem, has issued stern warnings towards Athens, for the evaluation of the Troika to be complete by early July, in order for the next installment to be paid by late July, i.e. within the twelve-month limit required by the IMF and before the emergence of a financing gap. The need to complete the payment of the next installment by the end of July was also underlined by the IMF representative, Gerry Rice. The strategy of the Eurozone and the IMF, then, is based on the payment of this installment, in order for the financing needs of Greece in the coming months to be met, and for the financing gap to be discussed “in due time” and, in any event, after the German elections. Nevertheless, given the problem in fulfilling the prerequisite for mobility in the public sector, which has already been mentioned above, it is doubtful whether the strategy of the Eurozone will be successful.

The reasons for the emergence of a financing gap are two: first, the revenues from privatizations, which are used exclusively for the repayment of bonds (and not for budgetary needs), are less than expected. Secondly and more importantly, some central banks of the Eurozone have not yet implemented the provision referred to in an Assessment Report by the Troika, since December 2012, according to which they must roll over the bonds of the Greek government in their portfolios for investment purposes (A.N.F.A. holdings). We have to recall at this point, that the central banks of the Eurozone are not independent and thus, the governments cannot oblige them to comply with decisions of the Eurogroup, which the former consider as “financing of member-states”. Consequently, every time that a bond of the Greek government in the possession of the central banks of the Eurozone expires, Greece repays it in full, without it being rolled over. As a result, the money of the Greek program of financing from the EFSF, which was budgeted to the last euro, is running out faster than it would under normal circumstances. Thus, the financing gap is coming up earlier than expected. It has to be clarified that the problem does not involve profits from the bonds of central banks that had been acquired in the context of the Securities and Markets Program (SMP), which are properly attributed to Greece through the main shareholders of the central banks, namely the governments of the Eurozone.

Even if a solution to the problem of the A.N.F.A. holdings can be found now, it is already late, considering that valuable resources have been used by the current program. With this data and given that the Greek program had no sufficient funding for the years 2015-16 anyway, the IMF is already pushing for the negotiation of a “Third Program” of support for Greece. However, the Eurozone is not politically ready at this stage, in face of the pending German elections, to discuss the further financing of Athens. Therefore, it is pressing towards the disbursement of the installment of July as soon as possible, as this will cover the needs of Greece until the end of the year; the discussion about the new program, then, can begin from 2014 onwards, i.e. when Greece will hopefully have achieved a primary surplus, also provided for in the decision of the Eurogroup of November 2012.

Finally, it should be noted that one extra obstacle is raised due to the overspending of E.O.P.Y.Y. (National Health Care Services Organization), which is threatening to blow up the current budget. In Brussels, it is estimated that the situation is still under control, with no need for additional measures, provided that direct health care needs are reduced.

The Troika Retains its Position – Referendum: the most Difficult Time for the Eurozone

The IMF reports on “errors” in the Greek adjustment program and the calculation of fiscal multipliers, as well as the insistence of the Fund on a “final” solution to the problem of the Greek debt, within the parameters set out above, have both created tensions in the relationship between Washington and Europe. Nevertheless, the withdrawal of the IMF or the replacement of the Troika are provided for in the foreseeable future, as it was made clear by the Head of the Eurogroup, Jeroen Dijsselbloem, in a press conference on June 20. When asked to comment on the proposal to upgrade the European Stability Mechanism (ESM) to a European Monetary Fund, which would “run” the adjustment programs without the interference of the IMF, Mr. Dijsselbloem did not reject the idea, but stated that any change in the role of the Mechanism will be discussed in the future and that “the role of the Troika and the contribution of the Fund are currently valued in the Eurozone”. On his part, the Head of the ESM, Klaus Regling, revealed that the worst moment for the Mechanism was when it was forced to postpone the issuing of its bonds, in face of the call for a referendum by the Greek Prime Minister at the time, George Papandreou. “Even Germany found it difficult to borrow during those days”, said Mr. Regling, highlighting thus the systemic risk that our country posed for the Eurozone.