Nearly after seven months of negotiations, the monitoring mission of the Troika in Athens concluded in the previous week, thus paving the way for the disbursement of an amount sufficient to cover the borrowing needs of the country for May (approx. € 9 bn.). Although many of the fronts remained open, which the European partners insisted on closing as a prerequisite for reaching an agreement, they were obviously willing to endorse the Greek government for its progress in reforms. “Fiscal performance is on track to meet the programme’s targets. Preliminary estimates suggest that the 2013 primary balance target was met with substantial margin. While only a small portion of this over-performance will carry over into 2014, we believe that the 2014 fiscal targets will also be met, taking into account the measures being implemented and planned”.
Given the pre-election atmosphere, the lenders decided to abandon their austere reform suggestions and for the first time welcomed the much-debated primary surplus, putting any doubts aside. “The climate has changed. Greece has received very positive feedback on its presidency, while everyone expressed their relief for the successful negotiation with the Troika in Athens. Everyone is now stressing that Greece has achieved its objectives and it is time for it to turn the page”, said the Prime Minister, Antonis Samaras, from Brussels after the spring Summit.
On his part, the vice president of the European Commission, Olli Rehn, who is in charge of the monetary policy, stated with regard to the long-awaited agreement: “Overall, it follows that Greece is turning the page and entering the road to recovery. This is undoubtedly positive news both for the Greeks and for all Europeans”.
However, the statement underlines the commitments for further reforms: “The authorities are making progress in structural reforms to improve the growth dynamics and flexibility of the Greek economy and to create a more fair and supportive environment for investment, development and job creation. They pledged to implement the vast majority of reforms proposed by a recent OECD study in the fields of food processing, tourism, construction materials and retail, to take concrete measures for opening up the sectors of services and rents, as well as of closed professions, and finally to reduce social security contributions and third party taxes”.
As far as the planned recapitalisation of the Greek banks is concerned, the statement highlights the risks, “regarding the estimates of capital needs, especially if the authorities and banks fail to deal with the high levels of NPLs rapidly and effectively. Nevertheless, they welcome the proposed injection of new private funds to the Greek banks, as “a sign of confidence, which will contribute to a strengthening of the private management of Greek banks”.
More particularly, the following issues have been remitted to the second half of the year:
- Collective redundancies: review -within six months- of the interim proposal of the Ministry of Labour, legislative regulation in case that all interventions so far are deemed ineffective by the International Labour Organisation (ILO), and further reforms in the framework of employment which have delayed.
- Public administration: protraction for the 4,000 employees who have been suspended in the context of the 25,000 layoffs earmarked for 2013 and the remaining 11.500 layoffs for 2014, disconnecting mobility from layoffs, and commitment of the government to the forthcoming target of a specific number of layoffs in 2015.
- Third party taxes: Commitment to further studies in affected funds and reassessment of any future decisions.
- OECD: time-extension for particular measures and reassessment of their implementation in the coming period.
Third Programme and Discussion on Debt
The steps pending before the disbursement of the installment include both the Greek Parliament’s authorisation of the implementation act of what was agreed in Athens, and the formal approval, which will be most likely achieved in the informal council of the finance ministers of the Eurozone, bound to be held in Athens, on the 1st of April.
However, the exact amount of the installment or the way it will be disbursed remain unclear. It is possible, indeed, that the remaining amount from the European programme (€ 10.1 bn. in total) will be disbursed only partially- in order for the borrowing needs of May to be met- so as for the Troika to return in June and for the assessment to carry on, along with the partial disbursement of the sum based on the prerequisites.
Equally important is the initiation of negotiations on debt relief, which is bound to begin after the confirmation of the primary surplus by the Eurostat on 23 April, whereas final decisions are to be taken after the assessment by the Troika in June.
Hence, all indications point to the third programme of support for Greece which, according to EU officials, is due to come into effect in autumn, after the completion of the current programme, whereas it will amount to € 15 bn. approximately and is bound to cover the financing gap of the country until 2016. Although it has not yet been officially confirmed, this programme will provide for the complete and decisive implementation of the reforms which have long been put in limbo.
The Deal on the Banking Union
After marathon negotiations, the European Parliament and the Greek Presidency reached an agreement on the issue of the banking union, and more specifically on the hot issue of the Single Resolution Mechanism (SRM). The two sides managed to agree on the most significant step in European integration after the Maastricht Treaty, after mutual concessions in relation to the two major “thorns” of the agreement.
- Concerning the capitalisation and pooling of the resolution fund, the European Parliament succeeded in reducing the timeframe for completing the capitalisation from ten to eight years, while at the same time it secured the pooling of a large amount of the funds much earlier (40% in the first year, 60% in the second and 70% in the third).
- With regard to the activation of the resolution mechanism, the member-states managed to establish their role in deciding when a bank will be deemed bankrupt. The decision will be made by the ECB and the Bank Resolution Council, although the member-states will have a say in the final decision when rescuing a bank will require more than € 5 bn.