Handelsblatt, the German business daily has no doubt: the winner of the Agreement is the powerful finance minister, Wolfgang Schaeuble who got what he wanted on the eve. No one speaks of debt reduction until after 2018, ie after the German elections. In addition, the IMF remains on board the conditions he wanted Germany, ie without having to go before the Bundestag for a new poll.
Of course also the greek Prime Minister Alexis Tsipras took home the result of having finally place the issue of debt relief on the negotiating table, but at a very high price, made of recessive measures and new taxes.
The final agreement approves the harsh measures taken by Athens to meet the demands of creditors, and first of all provides that Greece can make up for its short-term financing needs with a new tranche of Eurozone loans (the second the third rescue program) from 10.3 billion euro, of which 7.5 billion by June and the rest in October, after which will be verified whether the reforms have been implemented.
The agreement allows to mend the rift between the Eurozone and the IMF, which until now had refused to participate in the third program agreed last summer because he considered that the greek debt is not “sustainable” without a further and substantial reduction (especially through a very long-term extension of repayment deadlines and a reduction in rates).
is on the terms of this relief we have manifested the greatest difficulties in finding an agreement, especially given the strong German resistance. And despite the fact that it was Germany that insisted more because the IMF would continue to participate fully in the program for Greece.
In the end, without prejudice to the principle that there will be no “haircut”, or a net of the nominal value of the greek debt cutting (the “principal”), it was agreed that the burden will be lightened debt, that is what Greece pays in interest to its creditors annually, but without going into details of the measures that will be taken in the long and very long term, to be decided and quantified only in 2018, at the end of the third greek program and provided which it has been successfully implemented.
Officially 2018 is the year of the end of the third aid plan, practically after the German general elections in 2017.
It is the largest grant that made the Fund, which initially asked to decide on the measures of early debt relief (and not at the end) of the program decided last August, as a condition to participate. On this crucial point, the German vision has passed the “hawk” Wolfgang Schäuble, the finance minister, who now will not have to submit to the Bundestag a decision to lighten the greek debt before the elections in Germany, expected at the end of 2017.
in any case been taken some decisions that the burden of short-term greek debt will make it more manageable, with a reduction of the interest that Athens would have to pay in 2017 on loans received by the second program (of 2012) and a adaptation to very low current level of interest paid to the ESM (European Stability Mechanism, the fund guaranteed by euro zone countries which finances loans on the market with emissions).
Also, and this is particularly important for the IMF, although the medium and long term measures have not been quantified, it was decided to make an important parameter for the sustainability of finances of Athens, setting virtually a total roof the debt burden that Greece will have to pay each year: the gross financing needs ( “gross financial needs”) the country must not exceed 15% of GDP over the medium term and 20% thereafter.
Another point of discord between the eurozone and the IMF concerned the primary surplus (ie the balance sheet net of the interest on the debt) asked Greece. The Eurogroup (especially of thrust Schäuble) asking it reached 3.5% of GDP from 2018 and then maintained at this level in subsequent years. For the IMF, however, maintain a primary surplus for years so consistent it would be too ambitious and unsustainable for a country bent by a long and serious crisis such as Greece, and would be more realistic to be limited to 1.5% of GDP. In the end, it was decided to leave only the 3.5% target for 2018, without specifying whether it should be maintained thereafter. In short, everything returned.
At this point, the decision of the IMF to “back on board” the greek program will be registered by the management to the Fund board to be taken before the end of 2016, but we must see how it involve non-European countries, such as Brazil, which are opposed to new loans with no haircut.
They were a little controversial, finally, the other two elements of the discussion, which went smoothly and enabled the successful conclusion of the first ‘review’ (verification) of the third program, opening the road to the disbursement of the “tranche” of 10.3 billion euro: on the one hand significant structural reforms that Athens has actually already approved by law (the pension reform, the increase in VAT, the creation of a tool to manage non-performing loans of banking system and the creation of the Fund for privatization); the other the so-called contingency mechanism (particularly wanted from ‘IMF, but also from Berlin), which will trigger budget cuts or increases of automatic and “horizontal tax revenue” (subject to certain priority areas) if not both reached the target for the primary surplus. Prior austerity.
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