Merkozy call for Greece to be placed ‘under control’
German Chancellor Angela Merkel and French President Nicolas Sarkozy have come up with a new plan for Greece – to create a 'blocked' bank deposit account, through which the Eurozone will pay for the interest rates and maturing bonds of the country's debt, so that Athens will not go bankrupt.
The idea is gaining momentum, and Eurogroup President Jean-Claude Juncker is already supporting it. But let’s follow the facts.
On 6 February, the French president and German Chancellor met in Paris – the only item on their agenda was the sovereign-debt crisis in the Eurozone and, more particularly, the Greek ‘tragedy’. At the end of the meeting, they announced their idea, which would mean, if implemented, that Greece would be placed under ‘trusteeship’.
The Greek deal
If everything goes as planned, on the night of 7 February Greek leaders are set to accept the Draconian terms that the EU-ECB-IMF troika is about to impose on Greece, in order for the country to be favoured by the PSI agreement to cut its sovereign debt by €100 billion and also receive a second package of financial aid and soft loans worth €130bn.
If everything goes as planned, on the night of 7 February Greek leaders are set to accept the Draconian terms that the EU-ECB-IMF troika is about to impose on Greece, in order for the country to be favoured by the PSI agreement to cut its sovereign debt by €100 billion and also receive a second package of financial aid and soft loans worth €130bn.
In principle, out of this last sum, the new funds that will be directly placed at the disposal of the Greek government to pay back its debts and finance its new deficits will be of the order of €90bn. In addition, the country's banking system is expected to be recapitalised by another €40bn.
The bank account
The latest idea is that the €90bn should not be placed under the authority of the Athens government, but instead be deposited in a bank account, from which the Eurozone will be releasing funds to pay for the maturing Greek bonds and the interest rate.
At this point, it must be remembered that the first €110bn package of soft loans for Greece, as agreed in May 2010, were released in seven instalments directly to the Greek government, led at the time by George Papandreou. The Greek politicians used these resources not only to pay their country's maturing debts, but also to finance new budget deficits, as if the funds were somehow regular receipts of the Greek state.
The Papandreou government proved completely impotent at reducing the deficits, enraging the surplus EU countries that were providing the loans. In 2011, the government's financial gap was around 10% of GNP, as it also was 2010.
It took a year for everyone to learn that the Greeks either could not or did not to reduce their public deficits – in June 2011, this became quite clear.
Coming to more recent developments, the leaders of the three major Greek political parties who are backing an interim government under Loukas Papademos, an ex-vice governor of the European Central Bank (ECB), are demonstrating almost the same reluctance to arrest the omnipresent public deficits or downsize the state sector by effectively promoting an extended programme of privatisations.
In view of this, Germany and France, which are providing the majority of the funds being placed at Greece’s disposal, do not want to repeat the same mistake and allow Greek politicians to once again (mis)manage the latest soft loans, which are expected to reach €90bn by 2015.
At the same time, the major German and French banks, which have been lent heavily to Greece, have accepted a ‘haircut’ on their pending loans of up to 70% - calculated on a present-value basis, this will represent anything from €80-90bn.
In total, Germany and France have committed hundreds of billions of euro to Greece, but this time they want to make sure that all these loans will be repaid.
To this effect, Merkel and Sarkozy proposed (and Eurogroup President Juncker has already accepted) that all new funds will be placed in a bank account, from which only the official lenders will have the right to withdraw money.
Said funds will be used firstly to repay Greek debts and interest rates to foreigners and, if the lenders want, they could also release more money to pay for any new deficits in Greece.
This is tantamount to Berlin/Paris/Brussels appointing a budget commissioner in Athens – and an EU-appointed budget commissioner in Athens was another idea suggested by Berlin last week, but it was widely rejected as “too undemocratic”.
It would seem, however, that the latest idea of a ‘blocked’ bank account will have better luck with the 17 ministers of the Eurogroup, but only if, on the night of 7 February, Greece accepts the latest austerity programme promising reductions in private-sector salaries, further cuts in pensions and social protection and 150,000 government-worker redundancies.
0 comments:
Post a Comment