Eurozone sets new terms for Greece bailout
Eurogroup President Jean-Claude Juncker: Wants improved overview of how Greece spends aid package
Some ten days ago, New Europepublished the following:
“German Chancellor Angela Merkel and French President Nicolas Sarkozy have come up with a new plan for Greece – to create a blocked bank account, through which Eurozone will pay for the interest rates and the maturing bonds of the country's debt, so that Athens will never go bankrupt.”
This means that the new package of soft Eurogroup loans of €130 billion in favour of Athens will not be released in one go, but in instalments over the next few years.
Obviously, the idea is not only to save Greece from immediate bankruptcy but to make sure that the Athens government will continue in the years to come to prioritise payments on debts and interest and only then serve its current needs in health, education, social protection and defence spending.
It seems that after ten days and much ‘zigzagging’ by the main Eurogroup actors, the council of the 17 Eurozone finance minister, is now coming around to the same idea of withholding the ownership of the €130bn soft-loan package by placing it in an escrow bank account, thus making the second attempt to save Greece from disorderly bankruptcy a centrally controlled exercise and leaving zero manoeuvring space to Greek authorities.
In this way, the official lenders to Athens, that is its Eurozone peers, will retain as much leverage as possible loan Greece's options, during the programme period until 2015, especially after the next general election, which is likely to come in April.
It should be remembered that this second package of soft loans is bonded to severe austerity measures that must be applied by Greece.
In view of this, the ancient city of Athens had to pay heavy dues, with a number of its neo-classical buildings burned down by hooded youths on 12 February when the parliament adopted the highly unpopular austerity package imposed to Greece by its Eurogroup lenders, with Germany calling the tune.
The austerity package was backed by the two main political parties, Papandreou's PASOK and Samaras's New Democracy at a great political cost for both, each of them losing 20 deputies in that vote. There is a fast-changing political environment in Greece, favouring the political forces denying the new aid package and of course the austerity that goes with it (mainly the three left-wing parties).
It is then an easy prediction to say that the political scenery in Greece will be quite different after the next general election. The political spectrum denying the new Memorandum of Understanding (containing new loans and more austerity) comprises the three left-wing parties that now count for almost 40% of the votes according the latest polls, plus the nationalist LAOS party, which defected recently from the pro Memorandum group.
In view of this drastic political change, the Eurogroup lenders are not at all convinced that Greece will continue to prioritise its debt payments, especially after the election.
All these facts illustrate the difficulties the Eurogroup faces to approve the new Greek deal this week. In reality, Greece has so far fulfilled the three terms imposed by its Eurozone peers, namely to approve more austerity measures in Parliament, its two main political leaders Papandreou and Samaras to sign letters reassuring that they will continue to back the measures after the election and thirdly that more savings are made in the 2012 budget to bring further cuts in public spending of €325 million.
But Germany is now questioning the political ability and parliamentary presence of the two leaders after the next election to continue applying the Draconian austerity measures.
During this week, some Eurogroup members with triple-A creditworthiness even put on the table the absurd idea of asking all Greek political parties to sign the MoU before releasing the funds to refinance Greece and its commercial banks – there is no chance that the three left-wing parties would sign such a document. So now, the Eurogroup is looking for ways and means to keep its leverage on Greece after the next general election.
To this effect, after an informal Eurogroup meeting via teleconference on 15 February, its president and Luxembourg Prime Minister Jean-Claude Juncker said that Athens had fulfilled all the terms set by the EU-ECB-IMF troika as a prerequisite of the €130bn package be released, but he added that the group now wants an increased overview of how Greece spends all this money during the coming years.
Juncker had favoured the Merkel-Sarkozy idea ten days ago that the Eurogroup or some other centrally controlled institution withhold the ownership of the €130bn through an escrow bank account and release the money in a way that Greece's debt payments were prioritised.
Now, experts from the three institutions that continue to cover the financial needs of Greece, namely the European Union, the European Central Bank and the International Monetary Fund briefly are working on such a formula to be presented on 20 February during the next Eurogroup meeting. This will be a clear change in terms for Greece.
As for the Private Sector Involvement (PSI) exercise to alleviate the Greek debt by €100bn and bring it to 120% of GNP by the year 2020, not much is going to change. It remains to be clarified, however, in what way the ECB will participate in reducing Greece's debt.
In any case after the new terms are accepted by Greece next week, the PSI exercise will be released along with the recapitalisation of the Greek banks. This done, there will be only €90bn left of the initial package to continue financing Greece’s maturing debt payments.
Comments