Tuesday

18th Jun 2019

Greek deal: details and next steps

  • Greek MPs to vote Tuesday or Wednesday (Photo: Αλέξης Τσίπρας Πρωθυπουργός της Ελλάδας)

Monday’s (13 July) Greek deal is just the first step in a long process that might unlock up to €86 billion of new aid.

Jeroen Dijsselbloem, the chair of the Eurogroup of finance ministers, told press: “The final completion of a deal could take a number of weeks”.

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  • Eurogroup to discuss bridge-financing Monday (Photo: Consillium)

Christine Lagarde, the head of the International Monetary Fund (IMF), noted: “The [summit] agreement is a step toward creating confidence and … there’ll be many more steps needed to implement what has been agreed”.

The summit produced a seven-page document, which envisages two sets of Greek reforms, as well as additional steps.

The first set is to: improve VAT collection; broaden the tax base; reform the pension system; copper-plate the independence of the Greek statistical office; and create a system of “quasi-automatic” budget cuts in case the Greek economy underperforms.

The second set is much bigger.

It includes: deeper pensions cuts; new retail laws, for instance, introducing Sunday trading; opening up of “macro-critical” professions like ferry transportation; privatisation of the electricity grid; weakening of trade unions; and ending “political interference” in bank sector appointments.

It also includes the creation of a €50 billion Greek asset fund.

The fund is to be based in Greece and managed by Greek authorities, but under the “supervision” of EU institutions.

Dijsselbloem said “experts” will assess which Greek assets will be placed under the fund’s ownership. But French leader Francois Hollande said up to half of it will be Greek banks.

The income generated by the fund, part of it through privatisations and part by what Dijsselbloem called “running” of the assets, will be chopped into three pieces.

Half will be used to recapitalise Greek banks.

One quarter will be used to reduce the GDP to debt ratio and one quarter for investments in the Greek economy.

The additional steps include request for fresh IMF assistance, and compliance with IMF monitoring, from 1 March 2016.

They also include reform of the Greek judicial system, to end government clientelism.

Next steps

The next step will be for Greek MPs, on Tuesday or Wednesday, to ratify the summit document and to enact the first set of reforms into law.

If Greek MPs agree, the other 18 euro-states’ governments and parliaments will ratify the summit document, with the most hawkish parliaments - in Finland and Germany - the ones to watch.

Dijsselbloem said this should take place on Thursday or Friday. But he added: “It’s difficult to say when, because they’re sovereign parliaments, so they’ll decide on their own timetables”.

If the votes are in the bag, the Eurogroup and the board of the European Stability Mechanism, a Luxembourg-based crisis fund, will start talks with Greece, possibly next weekend, on a “memorandum of understanding”.

The memo will flesh out details of the second set of Greek reforms.

If there’s an accord, it will unlock between €82 billion and €86 billion of ESM assistance over the next three years.

Between €10 billion and €25 billion is to be used for bank recapitalisation.

One billion will be placed in a special account for emergency use.

If the ESM deal is put in place, and if the first “programme review” confirms Greek compliance, Dijsselbloem said “we’ll also have to deal with financing of Greek debt and [long-term] debt sustainability”.

The summit document says this might include “longer grace periods” for Greece to pay back loans.

But both the document and German chancellor Angela Merkel underlined there’s no question of debt relief, or “haircuts”.

The document added that, over the next three to five years, the European Commission will channel €35 billion from its flagship “Juncker fund” to Greece.

One billion euro will be front-loaded for an immediate boost.

Bridge-financing

Long and medium-term issues aside, Greece also needs to repay private and public sector bonds in the coming days to avoid default

One crucial bill is €4.2 billion, due to the European Central Bank on 20 July.

But the summit document estimates that Greece needs €7 billion to cover July and €5 billion more up to mid-August.

Dijsselbloem said the Eurogroup will reconvene later on Monday to discuss “bridge financing”.

“This [bridge-financing] would involve all the member states, but it’s too early to say how this will go”.

French president Francois Hollande noted: “It’s now necessary to put in place the financing mechanism for the time of the negotiation”.

EB meeting

In the meantime, Greek banks remain closed and capital controls remain in place.

But the ECB, which is providing emergency liquidity assistance [ELA] to Greek lenders, will also hold a board meeting on Monday.

If it opts to raise the ELA ceiling, either on Monday, or following the Greek parliament vote, the pressure on Greek banks will ease.

"The situation in Greece is very tense, so there is a certain interest we advance quickly with further steps”, Merkel said on Monday.

“I have no reason to doubt the timetable”, she added.

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