It was last Monday when the Eurogroup took place in Brussels to discuss about the Greek programme but no final decisions were made neither on the ESM’s programme first review nor on the debt relief.
The Eurozone Finance Ministers decided though to come to an agreement at their next meeting on May 24, after the Greek authorities would have discussed and legislated the required reforms and mechanisms. The Greek parliament approved last weekend unpopular measures of 5.4 billion euros which are part of the deal with the creditors in order to release the first tranche of the new program.
The debt relief was put on the table of the negotiations but nothing detailed was decided since it is a matter that needs a lot of effort and technical support in order to be resolved. Apart from that though, it requires Germany’s consent. This country still opposes the International Monetary Fund’s plan (IMF) to cut the nomila value of Greek debt.
Greek government looks optimistic
The Greek side is happy that the rest of the Eurozone countries approved the measures which were voted last Sunday and that finally brought up for discussion the issue of debt relief.
Nonetheless, the technical teams of the creditors will come back to Greece to assess whether these measures are in line with the agreement which was concluded last summer and finalized the contingency mechanism which must be legislated in advance, to secure the annual primary surplus target of the rehabilitation programme.
That is why the SYRIZA-ANEL coalition govenment are running to prepare the next legislation that will contain not only the rest of the policy measures covering 1% of the GDP, but also a contingency mechanism. Only if all these are agreed with the creditors at the technical level, then the Eurogroup of May 24 will decide positively for the programme’s first review and unleash the first tranche by next July when Greece has a 2.3 billion euros loan repayment to the ECB.
Too early for a debt relief
The Eurozone Finance Ministers had a general discussion on the Greek debt and its sustainability during their gathering in Brussels two days ago. It was suggested that a facilitation of the market access, a smoothness of the repayment profile, a provision of incentives of the country’s process after the end of the programme and a flexibility on uncertainties of GDP growth and interest rate developments are among the measures that could provide a debt relief to Greece.
Furthermore, the fact that Wolfgang Schäuble and Germany are against a debt relief and with the German elections to come up soon, it is high unlikely that such an agreement will take place soon. The German Finance Minister stated during the Eurogroup meeting that is “still confident” that an agreement will be reached by the end of the month.
However, the debt issue is put on the table as a persuading method for the IMF to stay in the programme, something that is greatly reinforced by the German government. According the analysis that was prepared by the European Stability Mechanism (ESM) to be presented to last Monday’s Eurogroup, Greece’s economic growth would be 3.1% in 2018, 2.8% in 2019, 2.5% in 2020, 1.5% in 2025 and 1.3% from 2030 to 2060.The ESM document was obtained by Reuters and under this scenario, Greece will maintain a 3.5% of GDP primary budget surplus from 2018 until 2025 and 1.5% in 2040-2060. The latter is another reason to urge Eurozone Finance Ministers to work more intensively on debt relief measures that would be beneficial and sustainable for Greece.
Greek citizens to pay the price once more
The measures which have already been approved by the Greek parliament and the ones to come are going to make things even harder for the Greek people who will see their pensions and salaries decrease even more while their tax burden is raising up.
What is more, it seems very difficult, given the legislation of the new measures, for a foreign company to come to Greece to invest or being established the time that the conditions are not profit-oriented and the terms in the neighboring countries are more favorable. Thus, it is probable that most Greeks will end up not to be able to pay their taxes leading to miss the surplus budget target and activate the contingency mechanism which remains to be created by the Greek officials in collaborations with the technical team of the creditors.
All in all, the new measures and the contingency mechanism seem to have the governmental majority to be approved by the Greek parliament till the next Eurogroup which will lead to a positive evaluation and withdrawal of the first tranche for Greece.
However, it is almost certain that all these harsh measures will make Alexis Tsipras and the SYRIZA party more unpopular thus much that is going to cost him the next Greek elections.