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27/09/2016

Commission leaves door open for Greek bail-in

Euro & Finance

Commission leaves door open for Greek bail-in

Alexis Tsipras with Valdis Dombrovskis.

[European Commission]

European Commission Vice-President Valdis Dombrovskis warned Athens on Tuesday (27 October) of a possible haircut in Greek deposits in the event that the first bailout review was not completed this year. EurActiv Greece reports.

During a visit to Athens this week, Dombrovskis urged the government of Alexis Tsipras to push forward reforms in order to complete the first review of the €86-billion bailout agreed with international creditors last summer.

In an interview with Skai.gr, EurActiv Greece’s partner publication, Dombrovskis said that the recapitalisation of Greek banks should take place after the first review of the bailout deal, and no later than 15 November.

After meeting Greece’s central bank governor, Yannis Stournaras, he emphasised that all agreed to finalise bank recapitalisation by the end of this year.

Under the bailout, Athens is set to receive up to €25 billion to recapitalise its banks.

The European Central Bank is currently assessing the capital needs of the National Bank of Greece, Piraeus, Alpha Bank and Eurobank. The results are expected on 31 October.

Asked what would happen if the first bailout review was not completed, Dombrovskis did not rule out a bail-in for Greek deposits.

“The issue will become more complicated, because then you will need to apply the bank recovery and resolution directive […] which may imply a bail-in,” he noted.

Concerns over tax authority independence

Meanwhile, the former Latvian premier also expressed concerns over the government’s recent decision to dismiss the General Secretary for Public Revenue, Katerina Savvaidou.

The General Secretary is the most senior official in charge of cracking down on tax evasion in Greece. The first “taxman”, Harris Theocharis, was appointed in February 2013.

The position, which has a mandate of five years, is supposed to be independent, in order to protect it from political pressure.

Harris Theocharis, who is reportedly under huge political pressure, resigned in June 2014, raising eyebrows among the EU executive.

>>Read: EU ‘seriously concerned’ about Greek taxman’s sudden resignation

Theocharis, currently a lawmaker for the centrist Potami party, was replaced by Savvaidou, who was dismissed by the Greek coalition government last week. A Greek prosecutor charged her with breach of duty for extending tax collection by a year on revenues for television advertising.

Dombrovskis said that during his visit, he also raised the issue of tax authorities’ independence.

“We need to ensure that there is no political pressure on the head of tax administration and that the selection of the secretary general is open and transparent”, he warned.

Dombrovskis sees ‘commitment’ in Athens

In another interview with radio Athens 9.84, Dombrovskis noted that in his visit, he saw a clear commitment of the Syriza-led government to work seriously on implementing the bailout programme.

“The government is willing to stick to these commitments and successfully complete the evaluation,” he said.

“Because there is a general belief that economic stability is a prerequisite for economic development, so we have to restore economic stability in order for Greece to return to economic growth,” he added. 

Background

Eurozone leaders reached an agreement on a programme to save Greece from bankruptcy after 17-hour talks on 13 July.

>>Read: Eurozone reaches ‘laborious’ tentative deal on Greece

This is the third rescue programme for Greece in five years. It will be managed by the European Stability Mechanism (ESM), the eurozone permanent crisis resolution fund that was initially set up five years ago in an effort to save Athens from bankruptcy.

Here is a look at what Greece must do:

  • Request continued support from the International Monetary Fund after its current IMF program expires in early 2016.
  • Streamline consumer tax and broaden the tax base to increase revenue.
  • Multiple reforms to the pension system to make it financially viable.
  • Safeguard the independence of the country's statistics agency.
  • Introduce laws in July that would ensure "quasi-automatic spending cuts" if the government misses its budget surplus targets.
  • Overhaul the civil justice system to make it more efficient and reduce costs.
  • Carry out product market reforms that include allowing stores to open on Sundays, broadening sales periods, opening up pharmacy ownership, reforming the bakeries and milk market and opening up closed and protected professions, including ferry transport.
  • Privatise the electricity transmission network operator unless alternative measures with the same effect can be found.
  • Overhaul the labour market. This includes reviewing collective bargaining, industrial action and collective dismissal regulations.
  • Tackle banks' non-performing loans and strengthen bank governance.
  • Significantly increase the privatisation program, transferring €50 billion worth of Greek assets to an independent fund, based in Greece, to carry out the privatisations.
  • Modernise, strengthen and reduce the costs of Greek administration.
  • Allow members of the three institutions overseeing Greece’s reforms - the European Central Bank, IMF and European Commission, previously known as the 'troika" - to return to Athens. The government must consult with the institutions on all relevant draft legislation before submitting it to public consultation or to parliament.
  • Reexamine, with a view to amend, legislation passed in the last six months that is deemed to have backtracked on previous bailout commitments.

Timeline

  • 31 October: Results of the Greek banks' stress tests