The Eurogroup has “spoken” of the Greek debt restructuring in its meeting this Monday, May 9, but he was careful not to take any decision. The chairman of the meeting of finance ministers, Dutchman Jeroen Dijsselbloem, said it was “early discussions”.
The short, medium and long term
Nothing will be decided before the meeting of May 24, the time to realize new scenarios and new assessments. The President of the Eurogroup has however raised a number of short, medium and long term to ease the Greek burden. In the short term, it is “to improve debt management and reduce cost.” In the medium term, it will be possibly extend grace periods for repayments and develop repayment periods. In the long run, finally Jeroen Dijsselbloem indicates that “additional measures” could be taken. But beware ! These last two medium and long term measures will be implemented at the end of the current program or in 2018.
First Complete the program
In terms of debt, the medium and long term is crucial. It is he who determines the visibility for the state, but also for investors. In other words, the key is moved to the end of the program. The Eurogroup therefore wields the carrot and the stick: there will be no substantial change in debt without completion of the program. It’s another sign that, despite what Pierre Moscovici and Michel Sapin, the “reforms” made by the Greek Government did not satisfy the creditors. The proposed restructuring of debt – which still excludes nominal debt reduction – remains conditional on obedience Greece to creditors. For the first time, the Eurogroup also discusses the repayment of profits realized by the ECB on the detention of Greek debt (estimated at € 7.7 billion), but only in the medium term and after the successful completion of the program.
Besides that, we can expect tough negotiations on this issue. The IMF will make a key for entry into the program and several countries of the Euro Group will be anxious not to “gift” substantial Greece. Jeroen Dijsselbloem said the IMF had positively considered the approach to be “short, medium and long” term of the Eurogroup. But, he added, “ no one has yet made a decision. ” In short, everything is still open to discussion.
Success for Alexis Tsipras
Still, this opening of discussions on debt is a belated victory for Alexis Tsipras, who had in fact been a priority since the acceptance of a new memorandum on July 13, 2015. Originally scheduled in the fall, this discussion s’ finally opened. Certainly, it is far from the original aims of Greece, which was a reduction in the debt stock, but Greek Prime Minister no doubt hopes to make an argument in its favor in the internal debate.
This Eurogroup also welcomed the vote by the Greek parliament of a series of measures Sunday evening. Again, this is a success for Alexis Tsipras who had imposed his majority, despite a general strike in two days, this vote happen in a strong position before the Eurogroup. He managed to gain acceptance by creditors committed a vote without the formal agreement of creditors. He may claim to have imposed its choice to creditors.
Complete the first assessment
But the situation is not so simple. The measures passed Sunday were, overall if not entirely, in line with the demands of creditors. Especially, the Eurogroup recalled that the first evaluation of the program was not completed. It should be in the coming days. The agreement with creditors will be finalized on 24 May and may include additional measures to secure the release of the next tranche of aid. In this case, will require ironing before MPs. Sunday’s vote will therefore be a first step. But the crucial element is probably elsewhere, is that of “contingency measures. “
Contingency measures
Creditors of the euro area are more determined than ever to get input from the IMF in the program must make credible the surplus target primary budget (excluding debt service) of 3.5% of GDP in 2018. for this, the Eurogroup has invented a new mechanism of “contingency measures. “If the goal is in danger, these measures will be implemented automatically without need ironing before the Greek institutions. Alexis Tsipras refused any such measure, deeming it contrary to Greek law. Finally, Athens proposed a mechanism close Monday including automatic measurements and not automatic. According to Kathimerini, pension cuts would be included in the measures that have been accepted by the Eurogroup. It will not be accurate measures passed in advance, but a control mechanism of public spending, which is legal in Greece. The statement of the Eurogroup, however, evokes a “package of measures that will be triggered automatically” if the goal deviation. In the end, the mechanism is irrelevant: Greece accepted the idea of an automatic mechanism to “correct”
High Price
In two weeks, May 24, l. Eurogroup could therefore release the next tranche of aid to Greece and propose a debt restructuring concept. Everyone probably cry at the victory and the Minister of Finance has already Euclid Tsakalotos Monday hoped that with this agreement, the trust could “finally back in Greece. ” It’s possible. But not certain. Because the price paid by the Greek government to tear this agreement is very high. The austerity measures are very heavy, they contain tax increases for individuals and businesses, VAT increases, reductions in future pensions, downsizing in the administration … Certainly, government tried to protect the most fragile, but it is a true austerity plan for 2016 and 2017 that will weigh heavily on the Greek activity barely convalescent from the crisis of 2015 and in outlook. Especially, the “contingency measures” 2018 promises continuation of this austerity until 2018. In this context, investors could still be very careful and growth waiting.
The vicious circle austerity is not broken
But if growth does not return, the Greek government will face new fall in revenue. Already, despite increases in VAT in 2015, this tax should bring in less in 2016 than expected. Greece will be condemned to chasing unattainable goals. Now, with contingency measures, this will trigger a new austerity plan. The vicious circle of unattainable goals and endless austerity is not broken, but reinforced by the “contingency measures. “Behind Alexis Tsipras victory cries, we must not forget this disturbing fact. Especially since the debt restructuring will depend on the success of this program …
Athens under surveillance
The Greek government remains closely monitored, including the measures of system contingent. For a debt restructuring that will judge on parts, but that should settle that part of the problem of the Greek debt, Alexis Tsipras had to give up more of its key objectives, including the questioning of primary surplus of 3.5% of GDP for 2018 and beyond and acceptance of contingency measures. However, this surplus is a sword of Damocles that will threaten long the Greek economy, as the IMF said last week. It is not certain the barter of a debt restructuring against austerity and enhanced surveillance is a good deal and the victory of the Greek government could therefore be only a pyrrhic victory.
the statement of the Eurogroup (in English).
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