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Five billion euro are required for the Greek programme

19 February 2014 / 19:02:50  GRReporter
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The Troika is returning to Athens after two months of absence and will hold on Monday its first meeting with Minister of Finance Yiannis Stournaras to discuss the structural changes and some pressing issues such as the liberalization of mass layoffs in the private sector. The fiscal deficit in 2014 and in the period 2015-2016 will be discussed in the summer, during the next assessment, when it will be considered whether new measures will be imposed or not.

The agreement between the government and the Troika will give the green light to the payment of the next tranche that will cover the instalments for May. However, only the Euro area will make its payment as the International Monetary Fund (IMF) has temporarily withdrawn.

Head of the permanent European Stability Mechanism (ESM) Klaus Regling and President of the Eurogroup Jeroen Dijsselbloem state that 10.1 billion euro have remained from the financial programme for Greece, which will cover the requirements of the country until August.

The IMF in turn has temporarily frozen the instalments to Greece for the next 12 months and cannot grant funding under its statutes. The IMF has not paid the December tranche to the amount of 1.8 billion euro and that for the first quarter of 2014, amounting 3.5 billion euro, or a total of 5.3 billion euro.

In this situation and in view of the fact that the financial deficit will be filled during the summer, Greece will rely on financing from the euro zone which, as reported, is to the amount of 10.1 billion euro. This includes the unpaid instalment from the permanent European Stability Mechanism to the amount of 3.1 billion euro for December 2013, 5.7 billion euro for the first quarter of 2014 and 1.5 billion euro for the second quarter of 2014. The total sum is 10.3 billion euro and there is a difference of 200 million euro between the amount declared by Regling and that defined in the credit programme.

Aid amounting to 10 billion euro to cover requirements of about 15 billion euro

It should be noted, however, that loan instalments up to August would require 15 billion euro, which means that if the IMF does not engage until then, there will be a shortage of around 5 billion euro.

The alternative is to meet the requirement of the Ministry of Finance to transfer the maturity of the bonds of Greek banks to the amount of 4.5 billion euro in order for the instalments up to August to be covered by resources from the permanent European Stability Mechanism alone.

Outstanding issues with the Troika

In all cases, the payment of the instalments by the permanent European Stability Mechanism requires an agreement with the Troika on the following important structural issues:

1. Reducing the employer contributions and, in particular, fulfilling the contract with the Troika, according to which the social security contributions paid by employers will have to be reduced by 3.9% by 2016 and the reduction should begin in 2014.

It is estimated that this will cost the insurance funds 850 million euro, which will have to be covered from other sources. This measure is the reason for misunderstanding among government representatives, as it seems that the Ministry of Finance insists on its immediate application, believing that it will contribute towards increasing employment. However, Minister of Labour Yiannis Vroutsis has recently stated that this measure will be gradually introduced, as provided in the memorandum.

2. Liberalizing mass layoffs in the private sector. If the Troika continues to push for doing so, the government will be in a difficult situation since, if the change in the law requires parliamentary approval, it will be hard for this measure to pass through parliament. The government will present to the lenders the decision of the Supreme Court from 22 January 2014 concerning labour issues, which only slightly modifies the existing regime.

According to this decision, those companies that want approval for mass layoffs will have to comply with the provisions of the relevant European Directive, attaching a file with details of the company, a plan for mass layoffs, a package of measures (training, advice, tools for self-employment) and records of conversations with employees. These conversations should also include alternative proposals to avoid layoffs, thus allowing the government to avoid introducing a legislative regulation and taking a ministerial decision. The procedure, however, has to be approved by the lenders’ representatives.

3. The fiscal deficit for the period 2015-2016 estimated by the Troika at 4-4.5 billion euro. The specific measures to fill this shortage must be set out but this will happen in the summer.

The medium-term programme to be submitted to parliament in April will not contain specific measures as it will be updated in the summer with an overall assessment of the financial and fiscal deficits, and the necessary measures will be added then.

4. The indication of the 11 thousand employees of the state or the broader public sector to be cut in 2014. The Troika insists on including, by the end of the year, 25,000 public workers in the mobility programme, this number being cumulative since 2012.

Tags: TalksTroikaEuropean Central BankInternational Monetary Fund
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