The Eurogroup calls for Structural Reforms and Investments
Skepticism and distrust: these were the European reactions in the face of a possible early decommitment of Greece from the programmes of financial assistance. In the meeting of the finance ministers of the Eurozone, which took place in Luxemburg on Monday, 13 October, the issue of “the day after” was brought up although with dubious results. Once more, the European partners put pressure on the Greek side so as to proceed with overdue structural reforms.
The head of the Eurogroup, Jeroen Dijsselbloem, stated that “it is a little early to say, as we are still in the midst of the current programme”. As he said, “the priority is to complete the fifth assessment and to implement prerequisite actions. He added that the Troika has identified various sectors that still need a lot of work “to bring the programme back on track” in its assessment so far, acknowledging however that significant progress was made over summer. “Once the findings of this fifth review become clear, the Eurogroup will start to discuss a number of interrelated issues such as arrangements to be put in place once the current programme expires, which will be at the end of this year”. Mr. Dijsselbloem carried on, noting that there is consensus regarding the potential exit which should be “viable and credible in all directions”.
The statement of the Austrian finance minister, Hans Jörg Schelling, are indicative: “We are rather skeptical of all this. We handle all news concerning Greece with disbelief and concern”. Similarly, his counterpart from Malta, Edward Scicluna, commented: “The issue has divided the ministers of finance not only in this meeting, but also in the meeting of the IMF”.
Obviously, of great concern to both the ministers and the Eurozone officials is the fear that the country will not continue with the reforms without the patronage of the Troika.
Therefore, when asked about the form of any supervision from 01 January 2015 onwards, i.e. whether the country will be subject to a process of regular assessment, Jeroen Dijsselbloem clarified that, in case of an additional line of credit, “this shall be accompanied by terms and conditions”.
On the Greek side, government sources said after the conclusion of the meeting that the implementation of structural reforms is another priority for the Greek government, on the grounds that “most Greek citizens have themselves realised the value of such reforms”. The government aims at a “prudent exit”, after which the terms of any agreements will be defined by itself and not by its lenders. “Greece wishes to smoothly and gradually turn to the markets, with the blessings of the lenders and credit rating agencies”, the same sources noted, adding that the atmosphere of uncertainty will only change if crucial decisions are taken.
Asked whether the Troika is satisfied with the draft budget plan of Greece for 2015, the Commissioner for Economic and Monetary Affairs, Jyrki Katainen, appeared skeptical, stressing however that the budget remains under consideration. “The situation in the bond market remains fragile”, said Mr. Katainen, while reiterating that many more structural reforms must proceed in the country in order to revive the economy and to improve the investment climate.
As far as the €11 bn. of the European Financial Stability Facility (EFSF) is concerned, which is bound for the recapitalisation of the Greek banks, the CEO of the Fund, Klaus Regling, said that two possible options exist. Firstly, to reimburse the money and reduce the Greek debt or, secondly, to use this amount in the coming year. Nevertheless, he stated that if Greece wishes to use this money for reasons other than the recapitalisation of banks, then a political decision is needed (e.g. by the board of the EFSF and probably by some national parliaments as well). Finally, he stressed that whether Greek banks will require part of this €11 bn. shall be communicated six months after the results of the stress tests, which will be carried out in late October. This is due to the fact that the level of participation of the private sector in covering a potential gap remains to be determined.
Regarding this same issue, however, the Greek side says it would prefer this amount to be used as a “safety cushion”, instead of returning it to the facility.
Converse pressures on France and Germany
France also came under scrutiny by the Eurogroup of Monday, due to the derailed draft budget plan for 2015 that was submitted to the European Commission on Wednesday. The Hollande government refused to reduce expenses, as required by the Stability and Growth Pact and the rules of the Eurozone to streamline deficits. Based on the French draft budget, public deficit is bound to decrease from this year’s 4,4% to a 4,3% in the coming year, i.e. by a mere 0,1% and far from the initial target of 3,8% for 2015, which has been postponed until 2016. Similarly, the desired 2,8% -i.e. below the threshold of 3% prescribed by the EU- has been deferred until 2017.
“The figures we are hearing from Paris are not very hopeful… There are certainly concerns there”, said Jeroen Dijsselbloem emphatically from Luxemburg, whereas he clarified that “no deals outside the pacts” will be made.
The French finance minister, Michel Sapin, suggested that Paris ultimately makes some concessions, but stressed that major modifications in the budget for 2015 would be difficult, both politically and technically.
As far as Germany is concerned now, the strongest economy in the Eurozone is also under intense pressure, although in a different direction. Its partners are asking for an increase in public spending, as well as for investments that would lead the Eurozone out of the impasse. The German finance minister, Wolfgang Schäuble, however, thwarted any hopes of significant increases in public spending: “We have no reason to overreact hysterically”, he said.
In light of the aforementioned pressures, Germany lowered its expectations for growth: the country’s GDP for 2014 is expected to increase by 1,2% instead of initial estimates of 1,8%, whereas the growth forecast for 2015 has declined from 2% to 1,3%.