Eurogroup announces completion of Greek debt-relief assessment

The regulatory measures of the Greek debt-relief plan adopted by the Eurozone Finance Ministers early Friday morning are outlined in detail in the Eurogroup’s final statement, which commends the Greek authorities for their completion of the agreed-upon reforms and describes the “post-program surveillance framework”. The statement also refers to past issues (the allegations of falsification of fiscal data) concerning staff members of the Hellenic Republic Asset Development Fund (TAIPED) and the former director of the Hellenic Statistical Authority (ELSTAT).

In particular, the Eurogroup’s announcement praises Greek authorities for their implementation of the requirements of the debt-relief measures and successful completion of the overall bailout program.  

The statement declares that “Greece is leaving the financial assistance programme with a stronger economy building on the fiscal and structural reforms implemented.” It emphasizes that “It is important to continue these reforms, which provide the basis for a sustainable growth path with higher employment and job creation, which in turn is Greece's best guarantee for a prosperous future.” The Eurogroup further praises the Greek authorities’ finalization of a comprehensive growth strategy, which “aims at enhancing Greece's long-term growth potential and improving the investment climate.”

Regarding the future primary surplus targets, the Eurogroup notes Greece’s commitment to maintaining a primary surplus of 3.5% of its overall GDP until 2022 and its subsequent alignment with EU fiscal framework. The statement elaborates that “Analysis of the European Commission suggests that this will imply a primary surplus of 2.2% of GDP on average in the period from 2023 to 2060.” With regard to the sustainability report of the Greek debt, the Eurogroup emphasizes that the country’s Gross Financing Needs (GFN) “should remain below 15% of GDP in the medium term and below 20% of GDP thereafter while ensuring that debt remains on a sustained downward path.”  

The Eurogroup statement cites the following as medium-term debt alleviation measures:

• The abolition of step-up interest rates associated with loans from the second bailout package from 2018 onwards.
• The European Stability Mechanism’s (ESM) use of central bank incomes (i.e. ANFA and SMP income) from 2014 Greek government bonds and the gradual restoration of their transfer to Greece. These funds will be transferred to Greece on a half-yearly basis (December and June), starting from 2018 until June 2022 through a separate ESM account. They will be used to reduce Greece’s Gross Financing Needs or finance other agreed upon investments.  
• Extension of the grace period for European Financial Stability Facility (EFSF) loans and an extension of the maxim weighted average maturity (WAM) by 10 years.

The statement announces that “based on a debt sustainability analysis to be provided by the European institutions, the Eurogroup will review at the end of the EFSF grace period in 2032, whether additional debt measures are needed,” referring to the May 2016 agreement for a “agreement on a contingency mechanism on debt which could be activated in the case of an unexpectedly more adverse scenario.”  This mechanism will include measures such as further debt “reprofiling” and “capping and deferral of interest payments of the EFSF to the extent needed to meet the GFN benchmarks” outlined in the statement.

Regarding post-program surveillance, the Eurogroup points out that debt regulation measures “should include incentives to ensure a strong and continuous implementation by Greece of the reform measures agreed in the programme.” It also mentions linking specific policy commitments with the return of SMP and ANFA income to Greece as well as the abolition of step-up interest rate margin until 2022. It “welcomes the intention of the European Commission to activate the Enhanced Surveillance procedure in the coming weeks and also the support for this approach by the Greek authorities.”

The Eurogroup’s statement also makes reference to “preoccupations” concerning the ongoing legal proceedings against TAIPED officials, as well as the former president and senior staff of ELSTAT, and calls upon these institutions to monitor developments in those cases “and report back to the Eurogroup in the context of the post programme surveillance.”

As to the last debt-relief package that Greece is set to receive, the Eurogroup states:

Subject to the completion of national procedures, the ESM governing bodies are expected to approve the disbursement of the fifth and last tranche of the ESM programme amounting to EUR 15 bn. Out of this total amount, EUR 5.5 bn will be disbursed to the segregated account, to be used for debt servicing and EUR 9.5 bn will be disbursed to a dedicated account set up to build up cash buffers, to be used for debt service in case of needs. Such an account will be subject to appropriate safeguards and any possible future utilization of its funds for an efficient debt management will be agreed by the Greek authorities with the ESM/European institutions. Overall, Greece will be leaving the programme with a sizeable cash buffer of EUR 24.1 bn covering the sovereign financial needs for around 22 months following the end of the programme in August 2018, which represents a significant backstop against any risks.

Finally, in relation with the International Monetary Fund, the Eurogroup’s statement mentions that “The IMF management welcomed the successful implementation of the ESM programme and the further specification of the debt measures given today by Member States.”

While moreover, the IMF’s Stand-by Arrangement “can no longer be activated,” the IMF “confirmed its continued involvement in Greece in the post-programme surveillance framework alongside the European Institutions.”