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24/09/2016

EU official: Greek bailout deal still open for fine tuning

Euro & Finance

EU official: Greek bailout deal still open for fine tuning

Alexis Tsipras speaking with Jean-Claude Juncker and François Hollande.

[European Commission]

The third bailout package agreed on by Athens and international lenders in July is still open for adjustment, a high-ranking eurozone official told journalists yesterday (9 September) ahead of a meeting of finance ministers in Luxembourg on Saturday (12 September).

The official, who was speaking in Brussels on condition of anonymity, said the so-called “memorandum” was a “living document” which could be adjusted to the constantly evolving economic situation.

“In the first review, you negotiate,” the official said in reference to upcoming meetings that are scheduled to take place between Athens and its creditors in October.

“If you look at the developments of memorandas of understanding (MoUs) for the first and second [Greek] programme […] these are living things that change in each and every review, so the same will go through this time around and will reflect the interaction of the Greek authorities and the institutions,” he said.

Syriza and New Democracy neck-and-neck

The remarks, coming from a high eurozone official, will not go unnoticed in Greece, where political parties are fighting for voter attention ahead of a snap election scheduled for 20 September.

With only ten days to go before the poll, the leftist Syriza party of Alexis Tsipras and the Conservative New Democracy are neck-and-neck in the polls. Both have promised voters they will seek concessions from the EU and try to obtain better terms for the country’s bailout.

Former Greek premier, Alexis Tsipras, recently said that “the battle for improving the third bailout is not finished yet”, a declaration interpreted by the German press as open door to fresh talks on a Greek eurozone exit – or ‘Grexit’.

Yesterday evening, Greek party heavyweights held a TV debate which highlighted clear divisions between those supporting an exit from the eurozone and those who want to stay in. Syriza and New Democracy are both in favour of staying, while only fringe parties like the neo-Nazi Golden Dawn and the “Popular Unity” want a Grexit.

>>Read: Syriza warming up to PASOK

According to the latest poll conducted by Pulse, the pro-Euro forces could get 70% of the vote while the anti-Euro parties 25-28%. 

The discussion in Athens now focuses on who will enter the next coalition government, as no single party is expected to win an absolute majority in Parliament. New Democracy and Syriza may be pushed to join forces or ally with smaller parties, in order to prevent a second round of elections, which both have said they want to avoid.

Greek banks recapitalisation

Meanwhile, in Luxembourg, EU finance ministers are also expected to discuss the state of Greece’s fragile banking sector.

Here, the picture appears to brighten up, the eurozone official said. The gradual lifting of capital controls in Greece has already begun, quicker than in Cyprus or Iceland, he remarked.

>>Read: Economist: Greek capital controls won’t be lifted before mid-2016

The EU official also said that the recapitalisation of Greek banks is “connected” with the first programme review, due to take place in October.

“The deal provides €25 billion for the capitalisation of the Greek banking sector […] €10 billion euro have been already disbursed while the decision for the remaining €15 billion should have been taken by 15 November,” he noted.

‘Greece will honor the deal’

Asked about the commitment of the government due to be formed after the snap elections on 20 September, the official said there was “no plan B for Greece, but only plan A and this is the agreement”.

He also appeared confident that the new government would implement the recently reached deal.

“I am fully confident that it will work well with the new government”, he underlined. 

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

If approved by parliaments, this will be 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 by Wednesday 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 privatization program, transferring 50 billion euros worth of Greek assets to an independent fund, based in Greece, to carry out the privatizations.
  • Modernize, 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.