Better prospects for Greek deal beckon on 20 February
AFP PHOTO / GEORGES GOBET
Eurozone decision makers, under pressure from markets, appeared ready on 17 February to release the €130 billion package of soft loans to Greece.
This is expected to take place during the Eurogroup meeting of 20 February, in order that Athens avoid a disorderly bankruptcy in mid-March, when a huge bond of €14.5bn needs to be repaid.
Without EU help, Athens cannot repay this bond. To achieve this, it expects its Eurozone peers to release the much-needed funds on 20 February, under a second Memorandum of Understanding (MoU), as agreed during the European Summit on 28 October.
This package contains a Private Sector Involvement (PSI) agreement with the country’s private lenders, expected to reduce the Greek debt by €100bn, along with the new soft-loan package. The realisation of the PSI exercise needs at least €30bn over the next three weeks - the money will finance the cash part of the agreement with the banks.
As for the participation of Greek banks in the PSI operation, this will leave the country’s banking system in need of recapitalisation, which will amount to around €20bn, a sum that is also supposed to come from the overall €130bn agreed between Greece and the EU-ECB-IMF troika.
However, the release of the funds has been questioned over the past few days, mainly Germany and its Finance Minister Wolfgang Schauble, who appeared uncertain over the ability, or even the willingness, of Greece’s political class to honour the country’s part of the bargain, which will involve the application of a Draconian austerity plan to be implemented over the coming years.
Schauble said that he was particularly worried about the Greek political situation after the next general election, which is set for the end of April. Germany has been joined by Finland and the Netherlands in casting doubt on the Eurozone's ability to find a way out of the crisis.
The three countries have advanced a controversial version of the Greek deal, proposing to break the package in two; releasing now only those funds needed to avoid Greek bankruptcy and then impose an overview on the Athens government's expenses, making sure that the country’s budget priorities are the debt payments, in an obvious attempt to place the country under German financial surveillance.
This is quite different from the usual quarterly controls of the Greek economy by the troika of its official creditors, which were routinely realised before the release of more funds. The new German proposal also presents major political, legal and operational problems. The idea behind the new German reserves is that the present political order in Greece, with its two major parties PASOK and New Democracy guaranteeing that the country fulfil its part of the deal, may change after the election.
For one thing PASOK, today’s leading power in the parliament, is now ranked fifth in the polls with only 8% of citizens saying that they will vote for the party in April. The two parties lost 20 deputies each in the crucial parliamentary vote of 12 February, when the house of 300 endorsed the new austerity plan with a 199 majority.
Schauble’s comments about the political situation in Greece provoked a strong reply from Greek President Karolos Papoulias, who reminded the Germans, Dutch and Finnish that Greece has repeatedly fought not only to maintain its own national pride and dignity but also for the freedom and the self-determination of the entire European continent.
In the end the German proposal, backed by the Netherlands and Finland to change the terms for the Greek deal, was countered by France and many other Eurozone countries, and seemingly Berlin is no longer insisting on it.
In short, under pressure from markets and major countries outside the EU such as the US, Berlin is again changing course. Reportedly Thomas Steffen, the German under secretary of finance, said on 17 February that the PSI exercise in favour of Greece will be launched on 22 February, meaning that the Eurogroup scheduled for 20 February will release the package.
So it seems that the markets were not wrong to appear optimistic and record gains, following a negative Thursday when even New York's Wall Street could not capitalise on the good news from the US employment market, and ended up in the red.
Last but not least, the Greek deal seems to be short of €10-15bn, according to the debt projection by the European Commission and IMF experts. It must be remembered that the IMF considers a country’s debt as sustainable up to the benchmark of 120% of GNP. In Greece’s case, this projection estimates that the debt will be around 128% of GNP by the year 2020, thus marking it as non-sustainable and sending the entire deal to a dead end - the IMF cannot continue financing a country with debt that is not sustainable.
To repair this default on the deal, the European Central Bank is expected to participate in the entire exercise (not in the PSI) with its portfolio of €50bn of Greek bonds, but not directly helping Athens. In any case, this is the easy part of the deal, once Germany gives a green light for the entire package.
Comments