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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 However, only the Euro area will make its payment as the International Monetary Fund (IMF) has temporarily withdrawn.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.

5. Cancelling taxes in favour of third parties. The memorandum states (after an agreement between the government and the Troika) that the taxes and fees to third parties should be cancelled; the taxes and fees whose revenues should be preserved will be transferred to the state budget. The Ministry of Finance has already compiled a list of the taxes in favour of third parties and submitted it to the Troika.

6. Completing the reforms contained in the agenda of the Organization for Economic Cooperation and Development.

Maturity of bonds

1. 12 May is the deadline for the payment of the instalment to the IMF on the first loan, amounting to 792 million euro or to about 820 million euro including interest.

2. 20 May 2014 is the maturity date of the bonds of the European Central Bank to the amount of 2.87 billion euro and of the bonds of the central banks in the Euro area worth 1.25 billion euro. This is also the maturity date of a bond of the European Union to the amount of 7 million euro and of a loan from the European Investment Bank to the amount of 30 million euro.

3. Also, 21 May is the maturity date of bonds worth 4.47 billion euro, issued in 2008 to increase the liquidity of the Greek economy against the acquisition of preferred shares of Greek banks by the Greek state.

4. Furthermore, 21 May is the maturity date of two bonds of the European Central Bank totalling 41 million euro.

5. 20 August 2014 is the maturity date of bonds to the amount of 3.96 billion euro, owned by the European Central Bank (3.57 billion euro) and of the central banks of the euro area (393 million euro), and of an instalment worth 370 million euro to the IMF on the first loan.

Social benefits will be the subject of confrontation

Different types of social payments that the government will make due to the upcoming elections, distributing the primary budget surplus for 2013, will be the subject of confrontation with the Troika.

It has been already decided to stop the increase in taxes on the allowance for dangerous work paid to certain categories of the military. Based on the law voted in the summer, as of January 2014 this allowance should have been added to the income of uniformed workers and taxed in full, which had led to an increase in taxes. By the end of 2013, 65% of this allowance was not subject to taxation and the remaining 35% were added to the annual income of the military and subject to the relevant tax.

Furthermore, the decision of the State Council, which is the Supreme Administrative Court of the country, on the repeal of the reduction of the salaries of uniformed workers, university teachers and on the possible reduction of the remuneration on all special payroll scales that the government intends to apply to "correct the injustice" is to be officially published.

The total cost of these decisions can amount to 1 billion euro and they will cause "permanent damage" to the budget, accounting for the fact that, if legalized, the pay adjustment will be permanent.

In addition, the lenders are concerned due to some pieces of information about the payment of special Easter allowances to pensioners and civil servants (!), which will increase the government spending, thus weakening the fiscal discipline.

It should be recalled that, according to the memorandum, the surplus funds should be allocated to the most socially vulnerable groups of the population, which probably include those 1.4 million unemployed who do not receive even unemployment benefits as well as those households whose income is below the poverty line.


Tags: TalksTroikaEuropean Central BankInternational Monetary Fund
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