Commission aiming at comprehensive agreement for Greece’s exit from the ESM programme

The European Commission is aiming for a comprehensive agreement on Greece’s successful exit from the ESM programme by the Eurogroup on 21 June, as European Commissioner for Economic and Financial Affairs Pierre Moscovici noted in statements on Monday. This agreement is to include debt relief, Greece’s growth strategy and post-memorandum surveillance.

The Commission considers that Greece is on the right track to successfully exit the ESM program in August, but has also pointed to some risks: those linked to external factors (eg nervousness in markets, geopolitical developments, etc.), the results of the stress tests for Greek banks to be announced on May 5 and whether the country succeeds in implementing all 88 prior actions required to complete the fourth programme review.

In particular, with regard to the fourth and final review of the programme, EU officials have noted four ‘thorny’ issues:

* Firstly, the fiscal measures that have been legislated in advance for 2019-2020. The institutions must re-examine the pension cuts, lower tax-free allowance threshold and envisaged ‘positive’ measures in light of the final figures for Greece’s growth and its primary surplus in 2017, to be announced at the end of April.

* Secondly, the real estate prices used in the ENFIA system for calculating property taxes – a “politically sensitive” issue for the government and one that is “technically complicated”, according to Brussels.

* Third, the energy market and privatisations.

* Fourth, the appointment of governors in the public sector.

It is noted that the latest estimate is linked to a significant loan tranche of 11.7 billion euros, which must be disbursed before the programme expires on 20 August 2018. This means that the fourth review should be wrapped up by the end of May in order for the loan tranche to be disbursed by July, as national parliaments will be closed in August.

Regarding the post-programme period, as the Greek government does not want a precautionary credit line, Brussels is looking for ways to continue the reforms over the next 3-5 years in Greece, as well as overseeing the policies being implemented.

For a “smooth” and “sustainable” exit from the programme, Brussels places great emphasis on the creation of a cash buffer of about 16-20 billion euros by August, with which the country is expected to be able to meet its debt obligations until the beginning of 2020.

With regard to debt relief, some of the measures will be linked to the implementation of reforms that Greece has agreed to carry out in the coming years. The proposals under negotiation include the following:

* First, the mechanism linking debt repayment with growth.

* Secondly, a package of medium-term measures, such as extending the repayment time of loans.

* Thirdly, the use of part of the available funds from the ESM program, amounting to 27 billion euros, for the purchase of IMF loans.

* Fourth, the return of central banks’ profits from Greek bonds (SMPs) estimated at around 4-5 billion euros.

Moreover, with regard to the overall growth strategy that Greek Finance Minister Euclid Tsakalotos will have to present by Easter, the European Commission stressed the need for the Greek government to have “absolute ownership” of the measures. This strategy should include, among others, reforms to attract investments in Greece, modernising public administration, a “growth-friendly” tax system, and the reduction of non-performing loans.

Lastly, the three issues that will be included in the overall agreement on Greece’s exit from the programme (post-programme framework, debt relief and growth strategy) will be discussed for the first time at a political level at the informal Eurogroup to be held in Sofia on April 27.