9th Dec 2019

EU ministers agree new bail-out fund, criticise Greece

  • Juncker: 'It is obvious the Greek programme is off track' (Photo: YoungJ523)

EU finance ministers have overcome Finnish objections to a permanent bail-out fund for the eurozone, access to which will be made conditional on signing a new treaty on fiscal discipline.

"We were able to agree on a text of the revised treaty concerning the European Stability Mechanism," Chair of the meeting Luxembourg Prime Minister Jean-Claude Juncker told a press conference late Monday night (23 January).

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The revised text provides for the ESM, the permanent bail-out fund for the eurozone, to be advanced by one year and to come into being on 1 July.

The breakthrough came after Finland agreed to lift its objection concerning an "emergency" voting procedure which Helsinki says favours big countries such as Germany and France. The provision - allowing countries representing 85 percent of the fund's capital to take decisions instead of unanimity among the eurozone 17 - will only apply to authorise ESM loans from existing funds, the Finnish finance ministry said in a statement.

The ESM agreement will also allow for the creation of an emergency reserve fund when a majority decision is taken, the ministry said.

Meanwhile, access to ESM money will be made conditional on countries signing up to a new intergovernmental treaty on fiscal discipline requiring binding legislation on governments to implement a "balanced budget" rule.

"There is a clear link in the recitals of the ESM treaty between the fiscal compact treaty and the ESM," Juncker said.

Germany pushed for the fiscal discipline pact in return for agreeing that the fund comes into being one year earlier and that it possibly gets more firepower than its current €500 billion.

"Today we reinforced both pillars - solidarity through the ESM and fiscal discipline through the fiscal treaty," French finance minister Francois Baroin told journalists after the meeting. He conceded that there is no support in parliament for the legal changes needed to transpose the balanced budget rule into French law before the April presidential elections, however.

A deal on the final wording of the fiscal treaty has not been achieved yet. Participation of non-euro leaders in eurozone summits remains an open issue that will have to be agreed by EU leaders when they meet on 30 January, he added.

Greece still far from second bail-out

As for Greece - which had been hoping to get some positive signs about its second, €130 billion bail-out - ministers made it clear that no assistance can be granted unless more reforms are undertaken and until talks with bankers on voluntary debt restructuring conclude.

"It is obvious the Greek programme is off track. Action has to be taken before we can seriously envisage a new programme," Juncker said.

The government of Lucas Papademos has been struggling to liberalise the labour market and go after tax offenders. According to the Greek finance ministry, 4,151 citizens owe €14.9 billion to the state – more than the €14.5 billion bond repayment Athens has to make in March.

In another pre-condition for the second, badly-needed bail-out, Greecec has to agree on a 50 percent debt cut with existing bondholders. But the bondholder talks, which should have been wrapped up by Monday, are still ongoing.

Juncker told journalists that ministers asked Greece not to agree on an interest rate above 3.5 percent for the new bonds that will be issued once banks agree to take a 50 percent loss on old ones. Investors from the Institute of International Finance negotiating in Athens have so far pressed for an interest rate above four percent.

Meanwhile, state prosecutors in Athens have launched an investigation into allegations that the country's statistical office, Elstat, in 2009 rigged the state deficit figures so as to be able to convince the EU and the International Monteray Fund it needed a bail-out.

The head of Elstat, Andreas Georgiou, told Dutch media his office was "under pressure" from the government, but claims he resisted and that the final figures were accurate.

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