The usual recommendation to Greece to continue the faithful implementation of the Adjustment Programme and to accelerate negotiations with the Troika for the completion of the evaluation, was addressed by the Eurozone Finance Ministers, at the two Eurogroup meetings that took place in Brussels in November. “We recognize the effort and progress that have been achieved, but Greece owes to make further efforts in order to close the open fronts with the Troika. It is essential to continue the decisive implementation of the Programme”, stated the vice-President of the Commision, Oli Rehn, after the Eurogroup of November the 22nd. A week earlier, on the 14th of November, the Head of Eurogroup, Jeroen Dijsselbloem, had pointed out that “we are aware of the efforts already undertaken by Greece, but the job is not yet done. Greece must deliver on four fronts; first, the milestones agreed at the previous review, second, the measures to close the fiscal gap in 2014 and 2015, third, the structural reforms and fourth, the improvement of the governance of the privatisation process.
Officially, our country still enjoys the support of its partners, as it was illustrated by the public recognition of its efforts, by the German Chancellor Angela Merkel, during her recent meeting with the Greek Prime Minister, Antonis Samaras. However, given that at the Eurogroup of the 14th of November, the exit of Ireland and Spain from the European Support Mechanism was made official, while the autumn evaluations for Cyprus and Portugal were completed without any problems, the delay of several months regarding the Greek evaluation, but furthermore the pending completion of the prerequisites for the disbursement of the balance of one billion euros, of the tranche approved in early July, are cultivating yet again, slowly but steadily, the image of the “black sheep” for Greece. Under these circumstances, it is a bet of crucial political significance for the Greek Minister of Finance, Yiannis Stournaras, to attend the December Eurogroup meeting (09/12), having closed at least one of the open fronts with the Troika, the heads of which are arriving in Greece on the 2nd of December.
The open fronts
The most significant obstacles for the completion of the evaluation, as they have been formed during the last week of November, a few days before the return of Troika’s audit officials, are the following:
– Public deficit: Troika does not accept the preliminary draft budget which was submitted by the government at the Parliament, considering that an additional intervention of 1,86 billion euros is necessary to achieve the recorded Memorandum target of 1,5% GDP primary surplus, in 2014. The government has proposed structural interventions of 1,2 billion euros, but the Troika has accepted up to now that these interventions will yield 600 million euros. An additional “gap” of 400 million euros is created by the loss of income due to the decrease of VAT in restaurants and catering, according to Troika’s calculations.
– New Medium-Term Programme: The Memorandum provides additional financial measures, for 2015, in order to reach the primary surplus targets for the years to come. The related discussions, as the one with regard to the new medium-term programme (until 2017), have not yet began with the creditors’ representatives.
– Primary Residence Auctions: The Troika is pushing for the lift of the moratorium at the end of 2013, with a transitory period of six months and special provisions for those who truly belong to vulnerable population groups, the cost of which will be borne by the state budget. The Greek government counter-suggests a transitory period of three years and the cost for protecting the vulnerable citizens to be borne by banks. It must be noted that the state is a principal share holder of all Greek banks.
– Mass layoffs: The Troika is asking the harmonization of the mass layoffs regime with those existing in the rest of Europe, on the basis of a comparative report prepared by the International Labor Office (ILO) and that the signature of the Labor Minister should not be required for mass layoffs. The government disagrees, withdrawing from previous commitments.
– Reforms: The Troika is requiring the full implementation of the OECD Toolbox for the reforms that will foster competitiveness. The government accepts to implement about 70% of these suggestions.
– Commercial leases: The Troika is requiring the recording of the terms of commercial leases in agreements between tenant and owner and the abolition of the minimum legal protection time limit for the tenants. The government counter-suggests a three-year protection for new tenants and the maintenance of the 12-year protection regime for existing contracts.
– Mobility-layoffs at the Public sector: The Troika is requiring monthly commitments for mobility in the public sector, in order to give extension to the government for the completion of the 25.000 employees’ mobility target until the end of 2013. It does not accept to count in the target the 4.000 layoffs from the public sector, those who may leave after the restructuring of the Greek Defense System (GDS), as the company was destined to be privatized.
– Greek Defense System (GDS): The Troika is requiring the immediate shut- down of the company, preserving only one manufacturing plant to serve the needs of the Greek armed forces. The government counter-suggests the restructuring of the company, maintaining its exporting character. The Troika is prepared to accept the government’s plan, under the condition that if the company does not become profitable within a certain time schedule, then it will close. The government simply accepts to “re-examine” the issue after the specified time interval.
The other Eurogroup and ECOFIN decisions
Besides the usual Greek “drama”, the EU Ministers of Finance discussed at the November meetings, the economic situation of the EU and the Eurozone and approved the Commission’s objections concerning the national preliminary draft budgets, which were presented to the other member states for the first time this year, before their vote by the national parliaments, under the so-called “two- pack”.
It should be reminded that the Commission has asked Italy and Spain to undertake new austerity measures, in order to achieve the agreed goals of reduced debt and deficit, respectively for 2014. Moreover, it expressed its skepticism on whether the budgets of France, the Netherlands, Malta and Finland correspond to the Stability and Growth Pact’s objectives. It should be reminded that if the Commission judges that the national preliminary draft budgets do not conform to the member-states’ obligations, then it can ask for revisions. The member-states are not officially bounded to follow these instructions but if they fail to reach their financial targets, they will be facing fines going up to 0,1% of their GDP. In this context, the fact that Greece has submitted a national preliminary draft budget without the Troika’s approval and demonstrates reluctance to conform to the Memorandum’s agreed financial targets, certainly does not improve its negotiating position, in regard to the crucial negotiations for the Greek debt relief, next summer.
Banking Union
Finally, regarding the second pillar of the European Banking Union, meaning the single regime of consolidation and liquidation of banks, the November ECOFIN did not make any substantial decisions, in the absence of a German government. Nevertheless, the goal remains to be the achievement of a political agreement on this issue by the end of the year, in order to complete the relative legislative procedure before the European elections of next May. Thus, it is not improbable to have another ECOFIN meeting taking place after the 10th of December, which is the last scheduled meeting of the ECOFIN for the year.
The existing disagreements focus on the following issues:
First, Germany wants to move the starting date of the new “bail-in bank rescue” regime from 2018 to 2015. It should be noted that an intermediary bail-in regime is provided, according to which when a bank is in trouble, it first impairs claims of subordinated bondholders and shareholders and it may then appeal to public funds. However, from 2018 the bail-in will be also valid for uninsured depositors, i.e. those who have accounts larger than 100.000 euros. In short, there will be a broad application of the “Cypriot model”. Berlin wants the acceleration of the new system, so that when the stress tests of European banks are over in 2014, public money will not be used, if possible, to rescue those in need of recapitalization, but instead to hurt the shareholders, bondholders and big depositors. As expected, many Eurozone states are reacting vividly, stating that in this way a new climate of insecurity will be created for the financial system.
The second open front concerns the single bank resolution mechanism and more specifically the Supervisory Board that “will push the button” on Friday afternoons to put a bank under liquidation regime. Germany agrees to the existence of a single Liquidation Board, but does not agree for it to be under the auspices of the Commission and insists that this Board should answer to ECOFIN, which will have the final word on the banks’ bankruptcy. However, many states argue that convening the ECOFIN is not an easy task and usually the decisions regarding banks’ liquidation must be made very quickly.
The third open front concerns the scope of the new single mechanism. Germany argues that it should only concern the 130 systemic European banks, which will be supervised by the ECB from 2014. Nevertheless, the counter-argument is that the big problems within the banking system in the past were caused by small and medium banks.
The main issue, though, is who is going to “pay the bill” for bankruptcies and bank liquidations. Germany opposes the idea of a single European “Resolution Fund”, which will be funded by subscriptions by all European banks, and in the mean time (until the money is raised), it will be able to borrow from the European Stability Mechanism (ESM), in order to fund the resolution programmes. Berlin argues that when a bank is in trouble, first there must be a bail-in of bondholders, creditors, shareholders and big depositors, then use the available sums of the national funds for financial stability and finally, if national funds run out of resources, to be able to seek recourse to the rest of the Eurozone. Opponents of this opinion would argue however, that this way we cannot achieve a banking union in Europe, intended to restore fragmentation and uncertainty, which result in the credit crunch of the periphery states.