Greece's key pledges and requests at the Eurogroup meetings

PoliticsGreek Politics Tags: European Union
Photo by EU Council via Flickr
Photo by EU Council via Flickr

Greece is expected to ask for a six-month extension to its loan agreement with its creditors at some point on Wednesday but it is not clear if this will be accepted as Athens is specifically rejecting the option of lengthening the bailout because it rejects the terms that come with it.

Whether this will be enough for Eurogroup president Jeroen Dijsselbloem to call an emergency meeting of eurozone finance ministers, which could discuss what kind of terms are acceptable to both sides, remains to be seen.

In the meantime, financial news website has revealed the presentations made by Greek Finance Minister Yanis Varoufakis at the two previous Eurogroup meetings. We present below the main points and will follow up with a more detailed analysis on certain economic issues.

Key points from February 11 Eurogroup:

Government commitments

  • Our citizens have rejected the role of the ‘Troika’ in Greece. Our government will however maintain dialogue and continue to cooperate fully with the European Commission, the ECB and the IMF as a member country of the European Union, the Euro Area and the Fund. Our future cooperation should be based on mutual trust and respect and channelled primarily through the European Commission while we work with each of our partner institutions in their specific areas of expertise and competence.

  • We are committed to sound public finances. Greece has made a vast adjustment over the past five years at immense social cost. Its deficit is now below 3% in nominal terms, down from 15% in 2010. Its primary surplus has reached 1.5% at the end of last year, its structural balance, as measured by the IMF, has reached a surplus of 1.6%, the best performance in the EU.

  • We stand ready to support structural reforms previously agreed with our Eurogroup partners with regard to tax collection, public financial management, public administration reform, improvement of the business climate, reform of the judiciary, spatial planning and fight against rent-seeking. They are fully consistent with our political mandate, and we will even accelerate them. 

  • We will take unprecedented action to fight corruption, to fight tax evasion and ensure tax enforceability, with an emphasis on transfer pricing in large corporates active abroad. We want to discuss legislative proposals to reinforce the legal framework for an independent tax authority. Technical assistance from you on these issues will be critical, not least because it will enhance trust between us and you.

  • We will make public procurement procedures more transparent thanks to a more centralized system, efficient monitoring and e-procurement. We will improve the overall efficiency of the public sector to increase the quality of services delivered to every citizen and tackle administrative burden.

  • We want to revive infrastructure projects with public and private investors and the support of the EU. Indeed, we have some innovative ideas of our own that may help mobilize idle savings into productive investments throughout the Continent, in support of the current efforts of the Commission to enhance investment and of the European Central Bank to stem deflationary forces.

  • On privatization and the development of publicly owned assets, the government is utterly undogmatic; we are ready and willing to evaluate each and every one project on its merits alone. Media reports that the Pireus port privatisation was reversed could not be further from the truth. Indeed, quite the opposite holds as foreign direct investment will be encouraged as long as the state secures a stream of long term revenues and a say in labour relations and environmental issues.

  • Quick fire sales of public property, at a time when asset prices are deeply depressed, is not something that anyone would advocate. Instead, the government will create a development bank which will incorporate state assets, enhance their equity value through reforming property rights and use them as collateral for the purposes of providing, in association with European investment institutions such as the European Investment Banks, funding to the Greek private sector.

  • We want to take additional measures to clean-up non-performing loans in the banking sector to render the banks able to support SMEs and households.

New partnership

  • Continued primary surpluses will remain our mantra. We propose a maximum 1.5% of GDP primary surplus objective, from as soon as the present disturbed economic situation has stabilized and for as long as necessary to achieve the underlying goals. This objective can be shown to be sufficient, under very reasonable assumptions, to put the debt trajectory on a downward path.

  • We invite the IMF to work with us to assess Greek debt sustainability building on the government’s commitments. This new DSA should reflect the concessional features of Greek debt due to its very long maturity and low interest charge. It is probable however that additional measures will be required to ensure Greece’s capacity to re-access the financial markets.

  • Greece will stand ready to make concrete proposals to its partners, in due time, on a menu of innovative instruments to reduce the debt burden efficiently, including debt swaps. We welcome Mr Dijsselbloem’s recent statement in our joint press conference in Athens that the Eurogroup is the proper forum to act as a permanent European debt conference, addressing debt problems in Euro area member States. We therefore propose to create a specific Eurogroup working group gathering member states’ representatives and experts.

Bridge programme

  • To meet our immediate payment obligations, we ask the Eurogroup to disburse to Greece the outstanding €1.9bn SMP bond-related Eurosystem income, in accordance with its previous commitments. We are, in fact, open to the idea that the ECB transfers these funds directly to the IMF in lieu of Greece’ outstanding repayments.

  • In July and August, €6.7bn repayments are scheduled to the ECB (as the holder of SMP bonds), on top of additional payments to the IMF. These payments create very exceptional pressure on Greece’s funding needs in 2015. We are confident that an agreement can be reached before the summer, notably with the IMF’s input, that would provide solutions and funding sources to cover these needs.

Technical extension

  • We remind you that the present deadline of 28/2/2015 are entirely artificial, and were the product of the previous government's electoral strategy and desire to confront us with these difficulties on taking office. It is time, in good faith, for these maneuvers to stop and for serious work to begin. We stand ready to ask for a revision of these dates in view of the next scheduled Eurogroup meeting next Monday the 16th of February 2015.

  • However, let me be very clear on this: the government asks for this revision of dates on the condition that it is the starting point for genuine negotiations in good faith for forging a different contract between us, based a realistic primary surplus effort and efficient as well as socially just structural policies – including of course many elements of the previous program that we accept. We need assurances on this point.

  • We can accept this revision of dates as a “bridge” towards a new partnership and a necessary condition for the discussion. However, such an extension cannot be taken as acquiescence to the logic and parts of the former agenda that have been rejected by our people.

  • We propose the bridge program to cover the period until end-August. This will provide sufficient time to agree on the terms of our partnership. A partnership that will bind our side to deep reform but also acknowledge and address Greece’s hideous humanitarian crisis, the non-availability of credit even for profitable firms, and the urgent need for investment-led growth.

Key points from February 16 Eurogroup:

  • Our difficulty in declaring a commitment to the current program, and to its “successful conclusion”, is that in our estimation this program was not conducive to recovery and, thus, inherently impossible to conclude successfully.

  • To many, our reluctance to accept the phrase “extend the current program and successfully complete it” stems from the determination of this government never to issue a promise that it cannot keep. We fear that if we accept the priorities, the matrix, of the current program, and only work within its overarching logic, even if we change some aspects of it, I fear that we shall be giving the debt-deflationary spiral another boost, we shall lose our people’s support, and, as a result, the country will be very hard to reform henceforth.

  • Nevertheless, there is much that we can deliver that is of mutual benefit. To do so, we need a short-term (three to six month long) agreement that will allow us to establish the “common ground” mentioned by President JD and Prime Minister AT last Thursday.

  • We need an in-principle agreement that during this period the Greek state will be funded under a minimalist menu that solves the short term cash flow problem (e.g. transfer to the IMF, in lieu of Greece’s repayments, of the €1.9 billion that the Greek government is due from the ECB ‘profit’-rebate agreement; a flexible ELA, a rise in the artificial cap of T-bill issues etc.) and commits the Greek government to a number of conditionalities: The Greek government reiterates its commitment to the terms of its loan agreement to all our creditors; the Greek government takes no action that threatens to derail the existing budget framework or that has implications for financial stability; the Greek government will take no action toward a haircut of its loans’ face value

  • In exchange of the above commitment that the Greek government is prepared to give during the period of the extension/bridge, our partners ought to agree that, during the same period: There will be no measures that we consider recessionary such as pension cuts or VAT hikes.

  • The Greek authorities are determined to use these few months effectively, as opposed simply to buying time for the purpose of doing little. We propose to concentrate on a few reforms that are essential and which can be implemented immediately, with the assistance of the institutions plus of the Organization of Economic Cooperation and Development. Among them, we intend to: Cut the Gordian Knot of bureaucracy - through legislation that bans public sector departments from asking of citizens or business information, certificates or documents that the state possesses already (and which reside in some other department); tax authority reforms towards greater independence, propriety and transparency; create an efficient and fair tax court system; modern bankruptcy system, judicial system reforms, in general; creating a competitive and sound electronic media environment that enhances transparency and yields tax revenues for the state; dismantle the various cartels.

  • To recap, our government is ready and willing to apply for an extension of our loan agreement till the end of August (or any other duration that Eurogroup may deem fit), to agree on a number of sensible conditionalities for the duration of this period and to commit to having a full review complete by the European Commission at the end of this interim period – a period that will allow Greece and its partners to design together a new Contract for Greece’s Prosperity and Growth.