Author :ERIC MAURICE
Posted : 7/4/2017
Eurozone finance ministers swapped Brussels’ brand new Europa building for old Valletta’s Grand Master’s Palace, but they came out on Friday (7 April) with the usual optimistic line about Greece.
“We have achieved significant progress since the last meeting,” Eurogroup president Jeroen Dijsselbloem said at a press conference after a meeting in Malta’s capital.
After months of delays and weeks of difficult talks, ministers endorsed an agreement between Greece and its creditors – the European Commission, the European Central Bank, the European Stability Mechanism, and the International Monetary Fund (IMF).
But the agreement will only allow experts from the creditor institutions to go back to Athens and try to reach a so-called staff-level agreement on reforms to be made by the Greek government.
The reforms are needed to conclude the second review of the bailout programme that was launched in 2015, and to allow the disbursement of a new tranche of financial aid.
In order to close the review, the Eurogroup will however need to agree on additional issues – Greece’s fiscal targets for few first years following the end of the programme in 2018, and the sustainability of Greek debts.
“We have an agreement on the overarching elements of policy in terms of size, timing and sequencing of the reforms,” Dijsselbloem said on Friday.
He said that Greece and its creditors have agreed on the principle of a reform package, designed to cut spending by 2 percent of GDP.
One percent will come from cuts in the highest pensions by 2019 and the other percent will mainly come from an increase in the income tax threshold.
Details based on this agreement in principle will be discussed by the Greek government and the institutions’ missions when it returns to Athens, most likely next week. A reform of the labour market is also still on the table.
To compensate for the effect of these austerity measures, the Greek government will be able to pass “expansionary measures” that would be implemented “on the assumption that the economy is doing better and the fiscal path is doing better than expected,” Dijsselbloem explained.
Greek finance minister Euclid Tsakalotos told journalists that the measures will address social issues such as “child poverty, employment, housing, investment, or old age pensioners’ contributions to medical costs”.
The spending-cut reforms required by creditors and the measures requested by the Greek government to help people most hit by the crisis will be tabled at the same time in the Greek parliament, and will have to be adopted before the Eurogroup closes the review.
“This is a balanced agreement,” EU finance commissioner Pierre Moscovici said at the press conference, adding that it would “help Greece get on its feet again”.
“The Greek people deserve the conclusion of the second review,” he said.
What Dijsselbloem called the “final stretch” before a deal and the disbursement of the next loan is likely to be difficult.
Greece, its eurozone partners and the IMF will have to agree on the country’s fiscal targets and future debt relief measures.
They need to decide how many years Greece will require to reach a budget primary surplus – the budget surplus before debt payments – of 3.5 percent of GDP after 2018.
The longer the target will be set – between three and five years, according to sources – the more Greece will have to maintain austerity measures.
The decision also has an impact on the sustainability of the Greek debt, with the IMF insisting that it cannot stay in the bailout programme if the debt is unsustainable.
“The whole agreement depends on all the pieces of the jigsaw puzzle,” noted Tsakalotos.
In a statement after Friday’s Eurogroup, the Washington-based institution said that there were “good prospects for successfully concluding discussions on outstanding policy issues”.
It added that its eurozone partners will have to come up with “satisfactory assurances on a credible strategy to restore debt sustainability” before it can decide whether or not it will stay in the programme.
The IMF says that the fiscal targets are too difficult to reach and that measures must be taken to reduce the weigh of the debt on the Greek economy. But the staunchest opponent of that position is Germany, which at the same time says that the bailout programme can only continue with the IMF.
“It is basically a discussion between Germany and the IMF,” an EU official told EUobserver.
A diplomat from a member state, also implicitly referring to Germany and the IMF, noted that part of the delay in recent talks was because “some want to talk about the debt as late as possible”.
All leaders in Malta pointed out that it was urgent to close the second review in order to dissipate uncertainties over the Greek economy, and also to avoid a crisis when Greece has to repay more than €7 billion in July.
“We need a deal very quickly,” Tsakalotos insisted, adding that “very few actors want a new Greek crisis”.