Clock ticking for Eurogroup’s Greek debt sustainability measures

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Mario Centeno, Chair of the ESM Board of Governors and Eurogroup President, and Klaus Regling, Managing Director of the ESM, at the annual ESM Board of Governors meeting in Luxembourg, June 21, 2018.

Clock ticking for Eurogroup’s Greek debt sustainability measures


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With the 19 Eurozone members’ finance ministers meeting in Luxembourg to discuss the group’s debt relief package for Greece and reforms to the Economic Monetary Union (EMU), Eurogroup President Mario Centeno emphasised that the day’s meetings will be critical in terms of finding a way forward for the Single Currency,

“We have an important day with an ambitious agenda ahead of us,” said the Eurogroup president Mario Centeno, ahead of the ESM annual meeting in Luxembourg, just before Thursday’s meeting, “We just got information that Greece is in compliance with all 88 prior actions,” he added in reference to the measures needed to conclude the EU’s fourth programme review, which opens the way for the disbursement of Greece’s last loan tranche, a development that Centeno said was “remarkable” on Athens’ part.

“What we can reassure is that today marks a new stage for the Greek economy. It will also mark a new era for the euro,” Centeno said while discussing the debt sustainability package for Greece. He went on to suggest that the next round of decisions will create new defence mechanisms for the euro. “We will increase the responsibilities of the ESM,” he added,  in reference to the European Stability Mechanism, which acts as a permanent firewall for the Eurozone and provides access to financial assistance programmes for Eurozone member states that are in financial difficulty.

ESM Managing Director, Klaus Regling said he was looking forward to the discussions and was confident that the Eurogroup would find a way to strengthen the European Monetary Union by having the ESM, “play a stronger role in the future of the Eurozone”.

The precise details on an extension of the second European Financial Stability Facility programme for Greece remain up in the air, along with an agreement on Greece’s fiscal reserve, which will ensure a clear exit Athens even without a new bailout programme.

According to the draft, Greece is committed to maintain a primary surplus of 3.5% by 2022 and to further ensure that its budgetary commitments are in line with the European financial framework and the EU’s estimate that Greece will have a GDP surplus of 2.2%. The ministers are still debating the precise numbers for 2023 -2060, but are expected to come to an agreement within a short period of time.

Regarding medium-term debt measures. the ministers have already decided on the abolishment of rate hikes linked to the second programme loan (EFSF). The use of 2014 earnings from the Agreement on Net Financial Assets (ANFAs) from the ESM account. The earnings will be returned to Greece in semi-annual instalments from 2018-2022 through the ESM special account and will be used to reduce funding needs.

The ministers have already agreed to prolong of the grace period for EFSF loans, but have yet to decide on the length of the average maturity period, with most estimated placing the number at 10-15 years for the average maturity. The Eurogroup will decide whether further relief measures are needed to ensure that debt servicing needs are met, a prerequisite for the European financial framework, based on a new debt sustainability analysis by the institutions

According to a May 2016 agreement, the Eurogroup will trigger a mechanism under a worst-case macroeconomic scenario. Whenever activated by the Eurogroup, it will contain measures such as further debt restructuring with a ceiling and extensions of interest payments on the EFSF loan to the extent necessary for debt sustainability.

Greek authorities have made specific commitments to complete major structural reforms initiated under the ESM program, including commitments to complete measures that are not entirely dependent on the government but based on agreed timetables. The ministers have endorsed the European Commission’s intention to activate an enhanced monitoring process in the coming weeks, with the support of the Greek government.

The Eurogroup’s latest report suggests that quarterly reports will allow for closer monitoring of the economic, budgetary, and financial situation and commitments for post-memorandum reforms in Greece.

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