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Christina Vasilaki: The Eurogroup has opted for the “tough” version for Greece’s day after

The Eurogroup has opted for the “tough” version for Greece’s day after

The Eurogroup of 6 November concluded that the European Stability Mechanism Enhanced Conditions Credit Line (ECCL) is the most suitable solution for Greece’s day after, in light of the conclusion of the European part of the economic adjustment programme. As announced at the end of the meeting by Jeroen Dijsselbloem, who heads the body of finance ministers of the Eurozone, “there is strong support for a precautionary credit line in a form of an existing ESM tool called ECCL -Enhanced Conditions Credit Line- and this is how we shall continue from now onwards”. Nevertheless, he mentioned that the technical details, i.e. the accompanying preconditions, “still need to be worked out” and therefore he thinks that “it is crucial that the current 5th review is concluded”.

As far as open fronts are concerned, which have been delaying the return of the Troika to Athens for the conclusion of the progress review, Mr. Dijsselbloem stressed that progress has been made, although not yet at a satisfactory level.

“We were informed that the Greek authorities have presented a package of further measures to the Troika institutions. While these measures constitute significant progress, more remains to be done but all express the wish for the Troika institutions to resume the current review mission as soon as possible. The Troika institutions and the Greek authorities are working closely together on the outstanding issues to come to a swift agreement,” he said emphatically.

For his part, the new Commissioner for Economic and Monetary Affairs, Pierre Moscovici, held that “if possible, the Troika shall return to Athens before the end of the coming week,” and reiterated his intention to visit Athens himself within the month.

A government source who was in Brussels for the meeting reported -concerning the schedule- that “the agreement has to be concluded within December”. The landmark date is 8 December, given that the Eurogroup meeting on that day has to reach its final decisions so as for the country to be ensured by 1 January 2015. Otherwise, after the current programme expires, “there is essentially nothing,” Mr. Dijesselbloem underlined.

It should be noted that the Greek government has expressed its willingness to prematurely terminate the IMF programme, which would normally continue until February 2016. When asked, then, about the participation of the IMF in the new agreement, the head of the Eurogroup said that “the IMF adds to the credibility of our work in Greece”. Earlier in the day, he had spoken to the Eurogroup about a broad consensus regarding its “involvement”, the exact form of which requires “further discussion”.

Greece is still entitled to another €3,5 bn. from the IMF and € 3,6 bn. from the EU (€1,8 bn. from the European Financial Stability Facility -EFSF- and €1,8 bn. from the so-called Securities Market Programme [SMPs], i.e. the profits from Greek bonds held by the ECB).

Klaus Regling, Chief Executive Officer of the European Stability Mechanism (successor to the EFSF), mentioned that “investors believe that the reforms in Greece are yielding results,” whereas the ECCL solution is “reassuring”.

Finally, concerning the practically €10 bn. apparently remaining in the Greek FSF, after the positive results of the stress tests of Greek banks, the European partners stressed that it is not at all certain that this money will be used to fund the cushion of the credit line, whose size he said “is not yet known”. The Greek side, on the other hand, argued that “it remains on the table as an idea for discussion”.


What the Enhanced Conditions Credit Line actually is

The “tools” available to lenders, in case that a member-state wants a safety net to strengthen its credibility in view of the financial markets, are two. Firstly, the precautionary credit line under certain conditions (PCCL – Precautionary Conditioned Credit Line), which is more favourable but requires -among others- a record of access to the markets on reasonable terms, along with sustainable debt and an already completed fiscal adjustment, for which Greece does not meet the requirements. Secondly, the Enhanced Conditions Credit Line which, according to the statute of the ESM, has the following key features:

  • The adoption of corrective measures to address existing weaknesses (namely the PCCL criteria that it does not meet);
  • The signing of a Memorandum of Understanding (MoU), which comprises the rules and conditions of support, as agreed with the European Commission, the ECB and the IMF, as mentioned characteristically;
  • Close supervision by the lenders, regardless of whether this money will be used or not;
  • Monthly reports and quarterly assessment missions;
  • And, finally, its potential deactivation and return to a full programme of fiscal adjustment in the event of deviation from the terms of the agreement.

The duration of the ECCL is “initially for a period of one year, with the possibility of an extension twice, each time for an additional six months”.