Two-month extension with political flavour
The finance ministers of the Eurozone decided on Monday, 8 December, to extend the current Greek programme for two months, in order to offer the Troika and Athens more time to complete the 5th assessment.
With the auspices of the last Eurogroup of this year, the adoption of required measures to reach an agreement has been postponed until early 2015, thus giving the Greek government a sense of support and renewed confidence among its partners, in view of a stifling political environment. At the same time, the Greek authorities announced the speeding up of the process to elect the President of the Republic within 2014, in a move that was interpreted as an attempt to end political uncertainty in the country.
In their declarations some hours thereafter -and amid the turmoil of the markets and the Greek stock exchange- European officials and finance ministers reaffirmed their support to the Greek prime minister, making clear that the risk of the decision was “equally shared, following a path of safe options” (election of President and maintaining the existing status quo) that will pave the way for “favourable” solutions (successful completion of the existing Memorandum and transition to the Enhanced Conditions Credit Line (ECCL).
Pierre Moscovici, Commissioner for Economic and Financial Affairs, pointed out that the markets should feel more secure. “Regardless of the decision of the Greek parliament, the ways to proceed exist,” he said, while estimating that Antonis Samaras “knows where he is headed at”. “While in an election process, one cannot be sure of the result. Nevertheless, I am persuaded that Mr. Samaras’ decision is based on the fact that it is possible to successfully complete the election process within the coming two weeks,” he underlined. On his part, Wolfgang Schäuble, the German finance minister, characterised the decision to speed up the election process as “a good decision,” adding that the situation is now in the hands of the parliament and the people. “Greece has not yet escaped from the danger, as shown from reactions so far. Of course, the internal political situation in Greece dominates the discussion, but things were not that different a few years ago,” he stated from Brussels.
In a more outright tone, Jeroen Dijsselbloem, the Eurogroup President, noted: “I cannot do anything about the fact that the markets reacted nervously, which is obviously related to the opinion polls in Greece. Thus, they did not just change their stance yesterday all of a sudden”.
The agreement
“Despite the progress made, the current assessment cannot be completed before the end of the year,” said Jeroen Dijsselbloem at the end of the meeting, adding that the Eurogroup held that “it is positively versed” towards a possible extension of the current programme until late February, “until an agreement is reached at the level of staffing and all prerequisites are met”. The two-month extension shall also pave the way for the disbursement of €1,8 bn. remaining in the current programme.
“We have looked at the pros and cons of both a short and a longer extension. Two months are sufficient in order for the assessment to be concluded, without being very far away from now. We need to get the job done now,” said the head of the Eurogroup in a characteristic manner. On the other hand, the Greek finance minister, Gikas Hardouvelis, expressed his satisfaction with the decision: “We have been disengaged. We need two more months so as to complete the assessment, which can be done without stress and with proper analysis”.
According to the Eurogroup decision, the member-states of the Eurozone reiterated their willingness to offer Greece an enhanced credit line (ECCL), if the Greek authorities request it and under the premise that the country has completed the reforms and taken the measures pending to complete the assessment. Validation of the ECCL shall also be subject to the “ongoing involvement of the IMF and completion of all relevant procedures at the national and European levels”.
With regard to the €11,5 bn. now, which remains in the Financial Stability Fund and was bound to be refunded upon completion of the current programme to pay off the public debt, the Eurogroup has decided to “extend the period of its availability until the end of February 2015”. Moreover, analysis of the sustainability of the Greek debt is also postponed until late February which, along with the conclusion of the assessment, shall form the basis upon which the Eurogroup will decide the granting of the enhanced credit line.
Formal request and interim report
The Eurogroup called on Greece to submit a formal request for extension on the exact day after the meeting, so as to offer the necessary time for its adoption by some national parliaments, as required by their constitutions, before the Christmas holidays (Germany, Finland, Netherlands). According to government sources, the relevant document also includes the request for an enhanced credit line, although the modalities for the ECCL as well as the role to be played by the IMF, are bound to be negotiated between Greece and the Troika during the two-month extension period.
On the same day, the representatives of the creditors (ECB, European Commission and IMF) were called upon to send a progress report recording the progress of negotiations between the Troika and Athens, the issues on which agreement has been reached, as well as the commitments of the Greek side concerning the remaining actions.
Government sources claimed that the interim report is also indispensable, so as for the parliaments themselves to ratify the “technical expansion” of the Greek programme.
Commissioner for Economic and Financial Affairs, Pierre Moscovici, also announced that the technical units of the Troika shall immediately return to Athens in order to complete the assessment.
“Greece is on the right track, but it needs to show greater ambition the soonest possible,” said the commissioner, adding that the prior situation of engagement did not allow him to make his promised trip to Greece, but henceforth he is “available”. In fact, government sources said that he will probably visit Athens before Christmas.
Eurogroup “green light” to France and Italy
While discussions in relation to the Greek issue are revolving around a political narrative that presents the adoption of an enhanced credit line as the end of memorandum-driven “pressures,” the message of absolute fiscal discipline -as the only way for the Eurozone to proceed- is reaching more and more recipients, among them the second and third largest economies – with distinctive and symbolic significance.
“We are confident that the Commission will take the necessary steps to ensure compliance with the Stability and Growth Pact,” read the statement of the special Eurogroup on the draft budgets of the member-states. France and Italy are the main focus, as the receivers of intensified pressures to take action in case that the necessary measures are not taken until the expiry of the deadline. Jeroen Dijsselbloem pointed out that this is a matter of “reliability” for the EU, which recently strengthened its role in the supervision of national budgets in terms of their compliance with EU provisions.
During the special meeting of the finance ministers of the Eurozone, which took place on Monday morning, the Eurogroup adopted the report of the European Commission regarding the member-states’ draft budgets for 2015. In this context, the decision of the European Commission to review the budgets of three countries (France, Italy and Belgium) in early March was upheld, as these countries were deemed to be “at risk of non-compliance with the rules of the Stability Pact”.
More specifically, in the case of France, which is already in the corrective arm of the procedure, the Eurogroup once again endorsed the Commission’s assessment that the country’s structural fiscal effort in 2015 will amount to a mere 0.3% of GDP, instead of 0.8% of GDP required under the excessive deficit procedure (EDP). On this basis and as already mentioned, additional measures will be needed in order to enable the country’s compliance with the rules of the Stability and Growth Pact. Moreover, the Eurozone welcomed the commitment of France to address the structural weaknesses of its economy, while encouraging the implementation of the ambitious and broad reform agenda.
As far as Italy is concerned now, the Eurogroup agreed with the Commission that the budget for the coming year violates the requirements of the Stability and Growth Pact and, therefore, effective measures will be needed to foster the improvement of the structural effort. “While we recognise that the adverse economic conditions, coupled with the very low rate of inflation, have complicated the achievement of benchmarks in debt reduction and full compliance with debt rules, at this point they seem overly demanding, whereas the high levels of debt remain a matter of concern,” the Euro finance ministers underlined. Based on the latest projections of the Commission, the structural fiscal effort of Italy in 2015 shall account for 0.1% of GDP, instead of 0.5% of GDP required under the preventive arm.