Greece will be the main topic of the European Council starting today. Although the leaders of the 27 member states will gather in Brussels, the “what to do” dilemma can be solved only in Athens.
The Greek Government survived a confidence vote in Parliament, but the most difficult part is yet forthcoming. The lawmakers must approve the five-year plan, agreed by the Government and the Troika (the EU, the IMF and the ECB). The planned measures to raise taxes and cut costs should fill the budget gap of 28 billion euros. The adoption of the plan is the main condition Greece needs to fulfill in order to receive the fifth tranche of the 110 billion euro loan from the EU and the IMF, as well as a new loan even larger than the previous one. Still no concrete figures or terms are officially announced, but according to The Financial Times the loan will amount to 120 billion euros.
On the eve of the European Council, while member states are trying to overcome their differences especially on the issue of private sector involvement (PSI) in the restructuring of the Greek debt, two initiatives have been launched in Brussels in support of “the community approach” for solving the Greek crisis.
The first one was presented by European Commission President Jose Manuel Barroso. He said Greece could benefit from EU cohesion funds to restore its competitiveness and boost economic growth and employment. “I believe this can be done now with the existing funds. The idea is to have a comprehensive programme of technical assistance, where the European Commission and the Member States complement the decisions agreed in the Troika, by increasing absorption capacity and putting the focus on increasing competitiveness and, of course, employment.“
The condition is, of course, the parliament to support the economic programme agreed with the Troika and Greece to say if it is willing to benefit from the Commission proposal. ”My message today is that if Athens acts, Europe will deliver,” José Manuel Barroso said.
The second initiative belongs to the group of Alliance of Liberals and Democrats in the European Parliament (ALDE). According to them the current approach to the Greek crisis is focused only on the fiscal adjustment, while neglecting investment and growth. So the group leader Guy Verhofstadt presented the so called “Hercules Plan” to save Greece, which includes several elements.
Greece is expected to conduct a more realistic and faster fiscal consolidation, and institutional reforms “aimed at dealing with corruption and clientele-type political practices”. For its part, Europe needs to stimulate Greek economic growth by reallocating resources from the EU budget and the European Investment Bank (EIB). The Liberals propose the creation of an EU investment package, which “should amount to €30 billion, of which €10 billion could already be taken from the funding period 2014-2020. Co-financing could be exceptionally dropped or covered by revolving funds.”
The eurozone countries should lower the interest on the Greek loan to the IMF level (3.5%), the liberals believe. As for the restructuring of the Greek debt, ALDE sees two main options for the bondholders – “accept that on their Greek bonds the maturity will be extended, or, and this may be a better option, accept to exchange the current bond package for a smaller package of secure AAA European bonds or EFSF bonds.”
At this stage, there are no comments from the Member States neither on the ideas of the Liberals, nor on the proposal of Commission President Jose Manuel Barroso. The Greek issue is expected to be included in the European Council's conclusions, but the text is still being worked upon. Most likely it will contain the highlights from the Eurogroup statement from 20 June: “the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme, while avoiding a selective default for Greece.” According to sources from the Council, discussions and negotiations with Greek private creditors are already ongoing.
The other condition, of course, is Greek Parliament to endorse the economic programme agreed with the Troika. This is also an IMF's condition to disburse the fifth tranche of the Greek loan. In addition, the IMF expects from the EU guarantees that the financing of the Greek programme for the next 12 months will be ensured so the Council's conclusions will give a clear sign that the EU will meet its commitments.
The only unknown is whether Athens will meet its obligations. Achieving a cross-party agreement between the major political parties is the only way to ensure the implementation of the economic plan regardless of any governmental changes. This was achieved in Ireland and Portugal and now it should be achieved in Greece. The EU's final decision in July will depend on that.