By Szu Ping Chan 13 July 2015
Greece has to push a series of austerity demands through parliament by this Wednesday in order to unlock a fresh multi-billion euro bail-out. Here's what the deal looks like
Greek prime minister Alexis Tsipras talks to the leaders of France and Germany on Sunday
The final statement from the Eurozone summit has been released.
In order to unlock a fresh €82bn to €86bn bail-out, Greece has until Wednesday to pass laws that:
• implement VAT hikes
• cut pensions
• take steps to ensure the independence of Greece's statistics office is maintained
• put measures in place to automatically slash spending if Greece fails to meet its targets on primary surpluses (revenue minus expenditure excluding debt servicing costs)
It has until July 22 (an extra week compared with a draft statement) to:
• overhaul its civil justice system
• implement the Bank Recovery and Resolution Directive (BRRD) to bring bank resolution laws in line with the rest of the EU
Greek MPs will also have to stomach a move to sell off €50bn of Greek assets.
Compare and contrast
Early on Sunday, a draft text outlining a possible deal was leaked. The changes between that text and the finalised seven-page version released today highlight the main areas of contention overnight. Here is our attempt at a compare and contrast, which gives some insight into what European politicians were discussing in the wee small hours of this morning.
Alexis Tsipras, Greece's prime minster reportedly asked for four concessions on the first draft.
• No IMF involvement
• A strong commitment on debt relief
• A signal to the ECB to restart emergency loans
• A smaller privatisation drive
The IMF will stay involved
Greece will have to deal with the International Monetary Fund whether it likes it or not. The new text reflects the fact that Mr Tsipras resisted any further involvement from the IMF. The first draft states the euro group "welcomes the intention by Greece to seek full involvement of the IMF". This has been removed from the final text.
A euro area Member State requesting financial assistance from the ESM is expected to address, wherever possible, a similar request to the IMF. This is a precondition for the Euro group to agree on a new ESM programme. Therefore Greece will request continued IMF support (monitoring and financing) from March 2016.
The Euro group expects continued full involvement of the IMF [and welcomes the intention by Greece to seek full involvement of the IMF in the monitoring and financing of the programme.] This is a precondition for the Euro group to agree on a new ESM programme.
The Fund's involvement also means this, which is unchanged from the first draft:
The Euro Summit acknowledges the importance of ensuring that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations in the coming weeks to create conditions which allow for an orderly conclusion of the negotiations. The risks of not concluding swiftly the negotiations remain fully with Greece. The Euro Summit invites the Euro group to discuss these issues as a matter of urgency.
Christine Lagarde, the head of the International Monetary Fund (Photo: IMF)
The biggest change to the wording relates to the €50bn privatisation fund which will be used to generate cash, which became the main obstacle to reaching a deal.
The fund will now be managed by the Greeks instead of an initial proposal to transfer the assets to "an existing external and independent fund". Some of the money will also be used for growth initiatives and to pay back the money used to recapitalise Greek banks. The initial purpose of the fund was solely to pay down the country's debts.
Martin Schulz, the head of the European Parliament, said yesterday that it was only right that Greeks managed their own assets.
He also revealed that it was Jean-Claude Juncker, the head of the European Commission, who proposed the idea, not Wolfgang Schaeuble, Germany's finance minister.
Here's how the new text compares with the old (emphasis mine).
...the Greek authorities shall take the following actions: to develop a significantly scaled up privatisation programme with improved governance; valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means. The monetization of the assets will be one source to make the scheduled repayment of the new loan of ESM and generate over the life of the new loan a targeted total of EUR 50bn of which EUR 25bn will be used for the repayment of recapitalisation of banks and other assets and 50pc of every remaining euro (i.e. 50pc of EUR 25bn) will be used for decreasing the debt to GDP ratio and the remaining 50pc will be used for investments.
This fund would be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions. In agreement with Institutions and building on best international practices, a legislative framework should be adopted to ensure transparent procedures and adequate asset sale pricing, according to OECD principles and standards on the management of State Owned Enterprises (SOEs);
...the Greek authorities shall take the following actions: to develop a significantly scaled up privatisation programme with improved governance. [The Greek authorities will invite an independent body to assess the price of assets sold and will investigate the best way to further increase the, independence of TAIPED with the involvement of the Commission.] OR [Moreover, valuable Greek assets of [50 billion euros] shall be transferred to an existing external and independent fund like the Institution for Growth in Luxembourg, to be privatised over time and decrease debt. Such fund would be managed by the Greek authorities under the supervision of the relevant European institutions;]
Piraeus port in Greece, part of which is already leased to Chinese company Cosco
The changes to the passages on debt sustainability amount to syntax rather than semantics. Eurozone leaders have put the blame squarely on the shoulders of the Greek government for its "easing of policies".
There are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last twelve months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment. The Euro Summit recalls that the euro area Member States have, throughout the last few years, adopted a remarkable set of measures supporting Greece’s debt sustainability, which have smoothed Greece’s debt servicing path and reduced costs significantly. Against this background, in the context of a possible future ESM programme, and in line with the spirit of the Euro group statement of November 2012, the Euro group stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level. These measures will be conditional upon full implementation of the measures to be agreed in a possible new programme and will be considered after the first positive completion of a review.
There are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last 12 months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment.The Euro group recalls that the euro area Member States have, throughout the last few years, adopted a remarkable set of measures supporting Greece’s debt sustainability, which have smoothened Greece’s debt servicing path and reduced costs significantly. [Against this background, in the context of a possible future ESM programme, and in line with the spirit of the Euro group statement of November 2012, the Euro group stands ready to consider possible additional measures to smoothen Greece’s debt servicing path even further, if necessary, to assure that gross financing needs remain at a sustainable level. These measures, including possible longer grace and repayment periods, will be conditional upon full implementation of the measures to be agreed in a possible new arrangement with Greece and will be considered after positive completion of the first review.]
The Euro Summit stresses that nominal haircuts on the debt cannot be undertaken.
German Chancellor Angela Merkel has repeatedly insisted that “a classic [debt] haircut” is out of the question
This statement, which was reportedly inserted at the request of the Germans, has also been removed from the final text:
[In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring.]
Originally, it was the final paragraph in the deal document.
Francois Hollande, the president of France, said on Monday that there was "strong pressure" in Germany, and elsewhere, for Grexit. He confirmed that the first Euro group draft included the possibility of a temporary exit. It was Mr Hollande who insisted the statement was removed.
Francois Hollande, the president of France, speaks to reporters after a marathon 17 hours of talks (Photo: AP)
There was also an olive branch
At the end of the final text, there is also a commitment to plough €35bn into Greece as part of a growth package. The money had already been earmarked for Greece from EU structural funds, but leaders committed to releasing an extra €1bn to try to stimulate the economy:
To help support growth and job creation in Greece (in the next 3-5 years) the Commission will work closely with the Greek authorities to mobilise up to €35bn (under various EU programmes) to fund investment and economic activity, including in SMEs. As an exceptional measure and given the unique situation of Greece the Commission will propose to increase the level of pre-financing by €1bn to give an immediate boost to investment to be dealt with by the EU co-legislators. The Investment Plan for Europe will also provide funding opportunities for Greece.