The Eurogroup welcomes the completion of a policy package, which should pave the way for a successful completion of the first review of the ESM programme, upon the adoption of the agreed prior actions.
Greece will implement as part of the prior actions for the first review:
- a first package of fiscal parametric measures amounting up to 3% of GDP by 2018; this package includes a pension reform, a reform of the personal income tax and additional fiscal parametric measures, such as a VAT reform and public sector wage bill measures;
- an additional contingency mechanism, which will be legislated to ensure that a package of measures, including non-discretionary measures, would be automatically implemented as soon as there is objective evidence of a failure to meet the annual primary surplus targets in the programme (3,5% in the medium-term). If measures are enacted with a temporary nature when the mechanism is triggered, permanent structural measures agreed with the institutions, including revenue measures, should become effective in the year thereafter, as part of the regular budgetary process, in order to bring the budget structurally back on track. Exceptions to the activation of the mechanism will be limited to exceptional events with a major economic impact outside government control. Such exceptions need to be agreed with the institutions.
The first review includes also the implementation of the NPL strategy, which will contribute to strengthening the balance sheets of banks and enable the return of domestic credit to the Greek economy. As prior actions, measures will be taken to immediately open up the market for the sale and servicing of performing and non-performing loans, with the temporary exclusion of small loans secured by primary residences.
The Eurogroup recalls that a significantly strengthened privatisation programme is a cornerstone of the new ESM programme. In this context, the Eurogroup welcomes the agreement for the forthcoming adoption of the law establishing the agreed Greek Privatisation and Investment Fund, including an initial asset transfer, as part of the prior actions for the first review. The Supervisory Board of the Fund will be appointed by June 2016, and the Fund will become fully operational no later than September.
In line with the statements of the Euro Summit and the Eurogroup in the summer of 2015, the Eurogroup stands ready to consider, if necessary, possible additional debt measures aiming at ensuring that Greece’s refinancing needs are kept at sustainable levels in the long-run. These measures will be conditional upon full implementation of measures agreed in the context of the ESM programme, and will be considered after the completion of the first review, once all prior actions have been fully implemented.
The Eurogroup agrees on the following general guiding principles for the possible additional debt measures: (i) facilitating market access; (ii) smoothening the repayment profile; (iii) incentivising the country’s adjustment process even after the programme ends; and (iv) flexibility to accommodate uncertain GDP growth and interest rate developments in the future.
The Eurogroup also agrees to establish a benchmark for assessing sustainability of the Greek debt, according to which under the baseline scenario of a debt sustainability analysis (DSA), Greece’s gross financing needs should remain on a sustainable path.
The Eurogroup foresees a sequenced approach, whereby a package of debt measures could be phased in progressively, as necessary to meet the agreed benchmark on gross financing needs and subject to the pre-defined conditionality of the ESM programme. The Eurogroup reconfirms that nominal haircuts are excluded, and that all measures taken will be in line with existing EU law and the ESM and EFSF legal frameworks. The Eurogroup will consider:
- For the short term: possibilities to optimize debt management of the programme.
- For the medium term: the Eurogroup asks the EWG to explore specific measures (such as longer grace and payment periods) which can be used, if necessary, at the end of the ESM programme, conditional upon the successful implementation of the ESM programme, as well as such measures as the use of the SMP and ANFA equivalent profits.
- For the long term: the Eurogroup stands ready, if necessary, and conditional upon compliance with the primary surplus targets, to further assess at the end of the programme the need for possible additional debt measures to ensure Greece’s gross financing needs remain on a sustainable path.
The Eurogroup mandates the EWG to work further on the technicalities of this package of debt measures and to report back to the next regular Eurogroup on 24 May.
Together with the agreement and implementation of the policy package, this agreement on debt and adequate financing assurances by the European partners are expected to allow the IMF to participate in the programme.
The Eurogroup calls upon the institutions and the Greek authorities to complete in the coming days the technical work on the staff level agreement on the first review, including the contingency mechanism. In this context, the Eurogroup looks forward to receive rapidly the draft supplemental MoU, including the final full list of prior actions, as well as the compliance report for the first review. It calls upon the Greek authorities to take immediate steps to implement the prior actions including through the adoption of legislation. Upon full implementation of the prior actions by the Greek authorities and following national procedures where necessary, the Eurogroup stands ready to support the disbursement of the second tranche of the ESM programme.
Remarks by J. Dijsselbloem following the Eurogroup meeting of 9 May 2016
Welcome to this Eurogroup press conference. We had an extra Eurogroup specially on the Greek programme. We discussed basically three topics: one is the policy package coming from the agreement which we achieved last summer; second, an additional contingency mechanism and third we had a first discussion on debt and sustainability and what needs to be done there.
So first, on the package the Eurogroup welcomed the agreement that was achieved on the policy package that should now lay the way for the successful completion of the first review of this programme. The first review includes also the implementation of the NPL strategy and the privatization programme. But the core of that package is the pension reform, personal income tax reform and additional fiscal parametric measures. Some of them have been legislated last night in the Greek parliament and the institutions will now complete this part of the process to assess whether everything is in accord with the agreement and to finalize also on the basis of further discussion the additional contingency mechanism.
So a few words on that mechanism: it will be legislated up front; it will ensure that, when necessary on an objective basis, Greece fails to meet the annual primary surplus target in the programme, automatically this mechanism will come into place. It will look at expenditure measures, including non-discretionary measures that can be replaced, at a later time, by structural measures to make sure that the programme, the budget, is structurally back on track and in that structural approach also revenue measures can be put in place.
So, what we did on the contingency mechanism is basically take the last proposal from the Greek government and force it, in our discussions today, to make sure that there is the option of permanent structural measures, agreed with the institutions, including revenue measures which could become effective in the year thereafter. So this is an addition, an amendment to the Greek proposal.
The privatisation programme is also part of the first review we have put in our conclusions today. The Supervisory Board of this Privatisation and Investment Fund will be appointed by June 2016 and the fund will become fully operational not later than September this year.
Then on debt we had a first round of discussion, looking at the necessity, the timing, the design and the conditionality of debt relief measures. Of course, any measures will be conditioned upon full completion, full implementation of the measures agreed in the programme and will be considered later on. There were no decisions today.
We agreed on a number of guiding principles: why are we doing this, why are we looking at further debt measures, of course to facilitate, to make it easier for Greece to gain access to the markets again, to smoothen the repayment profile in the coming years, to incentivise the country’s adjustment process and to accommodate uncertain GDP growth and interest rate developments in the future.
What we will do in the coming weeks — the EWG will be asked to do that work with the experts — is to design and establish a benchmark according to which under the baseline scenario of a debt sustainability analysis Greece’s gross financing needs should remain on a sustainable path. So if you remember, in 2012 we talked about having a cut or reducing the debt to GDP in a percentage which changes basically the method when looking at the annual debt burden and annual debt service. And we need to make, to develop that method and create a benchmark for it. So that’s the first thing that the technical people will have to do.
And then, in today’s meeting we discussed the way forward; we foresee a sequence approach: what we could do in the short term, the medium term and the long term. For the short term, it is basically about possibilities to optimize debt management, so the total debt could be further optimized, reducing the cost for the Greek side, making it more manageable in the future. For the medium term, we ask the EWG to explore specific measures, such as (they were already mentioned last summer) longer grace and payment periods, specific measures which can be used if necessary at the end of the programme, so no earlier than 2018. And there were two: one specific point that was mentioned and we will ask the EWG to look at it, and it is the use of SMP and ANFA profits. So this is about what could come into effect at the end of the programme in 2018: specific measures to reduce debt. And the third layer is for the long term: the Eurogroup stands ready, if necessary, and conditional upon compliance with the primary surplus targets, to further assess at the end of the programme the need for possible additional debt measures. So this is at the end of the programme: we will also look ahead and see what could be needed, what approach could be needed to make sure that also in the coming decades Greece stays on track also in terms of debt sustainability. That is a decision to be taken at the end of the programme in 2018. The EWG has a mandate to work further on the technicalities of these three approaches: short term, medium term and long term, and together with the agreement and the implementation of the policy package, this agreement on debt we are going to try to achieve in the next Eurogroup. This agreement on debt and adequate financing assurances by the European partners are expected to allow the IMF to participate in the programme.
Finally, on the outcome of today’s meeting, we have, so to speak, two work strands ahead of us: one is to complete all the measures in the short term package and make sure everything is done as agreed, and that could then lead, after a number of procedural steps, to the next disbursement to Greece; and the other work track is, as I said, the EWG would do technical work on debt measures in short term, medium term and long term. So we have two work strands ahead of us and we will meet again in the regular Eurogroup on 24 May and discuss all these issues once again.
Compliments of the European Commission