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Christina Vasilaki: Decisions on Debt Bound for Next Assessment

During the meeting of 15th May 2014, the Eurozone finance ministers decided to postpone the discussion regarding the Greek debt until the next assessment, which will begin at the end of the summer.

Probably with an eye the European Parliamentary elections in May, Jeroen Dijsselbloem, head of the Eurogroup, said that this waiting is necessary, given that the need for further measures of debt relief will also depend on the stress test results of Greek banks by the European Central Bank, which are expected in late October. “There are other prerequisites beyond the primary surplus”, he said characteristically.

Moreover, Mr. Dijsselbloem did not omit to stress the need for Greece to continue its “reform effort”, as a prerequisite for adopting measures towards debt sustainability, a need that was also listed in the official statement of the Eurogroup concerning Greece. “Euro area Member States reaffirm their commitment to provide adequate support until Greece regains full market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme. The relative merits of possible debt sustainability measures (on the part of Greece), as stated by the Eurogroup on 27 November 2012, will be considered in the context of the next review”, the statement concludes.

When asked respectively, Mr. Dijsselbloem replied that the Greek Finance Minister did not set out any plan for debt relief, although he “stressed the importance of complying with the agreement of November 2012”.

On his part, the Greek Finance Minister, Yiannis Stournaras, told reporters that he was satisfied with both the statement of the Eurogroup and the European Commission forecasts that were released in the same morning. “The Euro working Group and the IMF will first outline their plan for debt relief, and then it will be our turn in case that we disagree”, he stressed. With regard to the possibility of a haircut, he said that “haircut is equivalent to default”; “There are other ways to reduce debt”, he added and concluded that “when you turn to the markets, you cannot talk about something like that”.

Moreover, Mr. Stournaras explained that this was the first time that the European partners approved his proposal to use the EFSF’s remaining € 11 bn. for the purpose of reducing debt or supporting the Greek economy in light of a potential funding gap in 2016 – on the condition that this amount will not be used to recapitalise the banks. “I am persuaded that the stress tests, which have already been carried out by the Bank of Greece and Black Rock, were accurate and the four systemic banks of the country will need no further funding. Greece has a large pillow”, he noted.

Lastly, the president of the Eurogroup welcomed the Greek government’s completion of the prerequisites, as well as its budget surplus that was calculated “in accordance with the methodology agreed upon between the Troika and the Greek authorities”, he underlined. Along the same lines, the finance ministers of the Eurozone acknowledged in their statement “the determination of the Greek authorities to continue on the path of reform”. Nevertheless, they urged Greece “to develop a more detailed action plan in line with the current programme”.


Growth Strategy

During the meeting, the Greek Finance Minister presented the growth strategy of his government that will enable the transition to the “second stage”, i.e. from stabilisation and recovery to sustainable growth.

“Based on our progress so far, I presented our growth strategy for the coming decade to the Eurogroup”, said Mr. Yannis Stournaras. With regard to the programme in question, he explained that its aim, inter alias, is to attract investment, boost exports and foster entrepreneurship.

He also pointed out that the main objective on the Greek part is to exploit the highly qualified staff that exists in Greece, with the lack of liquidity being the main obstacle in such realisation. In fact, he emphasised to his counterparts -especially in the North- the importance of additional investors contributing to the institute for growth that has been set up, like the KfW investment bank and the European Investment Bank have already done.


The Spring Forecast of the European Commission and the OECD

According to the spring forecasts of the European Commission for Greece, which came to light a few hours before the meeting of the Eurogroup, growth is set to reach 0.6% in 2014. In support of winter forecasts, the Commission stresses that confidence indicators are showing improvement, whereas the budget deficit of the country is expected to sharply decrease, from 12.7% of GDP in 2013 to 1.6% in 2014 (the respective estimate of February was 2.1%) and 1% in 2015. Regarding unemployment, a downward trend is expected, from 27.3% in 2013 to 26% in 2014 and two points lower in 2015, to 24%.

A gradual recovery of Greece, although with more reservations, is also forecast in the latest OECD report on the world economy.

According to the organisation, recession is bound to continue in 2014 at –0.3% (instead of the 0.6% growth projections of the Commission), while growth is expected to reach 1.9% in 2015 (instead of 2.9% that the Commission forecast). Moreover, the OECD forecasts that unemployment will remain almost stable this year at 27.1%, only to drop marginally in the coming year at 26.7%. The deficit ratio is set to 2.5% of GDP in the current year and to 1.4% in the coming year.