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Greece Received a Commitment for a Carrot

Published on , , Zagreb, Twitter: @AdelinaMarini

"ESTRAGON: I'm hungry.
VLADIMIR: Do you want a carrot?
ESTRAGON: Is that all there is?
VLADIMIR: There are radishes and turnips.
ESTRAGON: Give me a carrot. ((Vladimir fumbles in his pockets, finds nothing but turnips, finally brings out a radish and hands it to Estragon who examines it, sniffs it.) Thank you. (He bites the radish. Whiningly.) But this is a radish!
VLADIMIR: Oh, I'm sorry! (Again fumbles in his pockets and finds nothing but radishes.) Only radishes. (Keeps fumbling). You have eaten the last one. (Fumbles). Wait, I found one. (Finally he brings out a carrot and hands it to Estragon.) There, my friend. (Estragon rubs the carrot with his hand and starts nibbling at it.) Bring me back the radish. (Estragon brings him the radish back.) Take it easy, this is the last one!
".

This is one of the vivid episodes in the Samuel Beckett's play "Waiting for Godot", which illustrates quite well another play - "Saving Greece", which has been staged for several seasons now on the eurozone and EU stage. After three consecutive Mondays, when the Eurogroup was meeting extraordinarily in an attempt to agree on a repair of the second adjustment programme for Greece, finally the country instead of sticks got ... a commitment for a carrot. On November 26th, in the middle of the night, after a long marathon of negotiations, the eurozone finance ministers came up with a statement, in which a key sentence is this one: "As was stated by the Eurogroup on 21 February 2012, we are committed to providing adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme".

This sentence is key because so far all the refusals Greece got for the financial injections under the bailout programmes to be resumed were due to non-implementation of the conditions in the programme by the authorities in Athens, subjected to strong pressure by the street. The new Greek government, led by Antonis Samaras, signalled a long awaited, highly doubted though, change of course from promises to real action. Something, which is duly noted in Brussels: "The Eurogroup again commended the authorities for their demonstrated strong commitment to the adjustment programme and reiterated its appreciation for the efforts made by the Greek citizens".

And here is the moment in the play when Greece expected to receive a carrot, but instead it got a radish, because Greece might have done a lot but it is still far from what is expected from her, while the problem with confidence remains. The main reason for the Eurogroup's discontent is that the outlook for the sustainability of the Greek government debt has deteriorated compared to March 2012, when it was calculated that Greece could, after a haircut of a significant part of the debt to private creditors, to reduce its debt to what was considered a sustainable level of 120.5% of GDP by 2020, as well as to balance (reach a primary surplus of 4.5% of GDP) its budget by 2014. According to the debt sustainability analysis, the negative outlook is due mainly to a deteriorated macro-economic situation and delays in programme implementation. This is why Greece will not get a carrot but only a radish.

What is the radish?

If Greece, as it assures its partners, goes on with the same determination implementing fiscal and structural reforms, and if there is a positive outcome from the debt buy-back operation, "the euro area Member States would be prepared to consider the following initiatives":

- A lowering by 100 bps of the interest rate charged to Greece on the loans provided in the context of the Greek Loan Facility - this means bilateral loans by the eurozone member states plus the IMF. It also means that the member states are inclined to reduce the interest rates on their loans for Greece from 5% to 4%;

- A lowering by 10 bps of the guarantee fee costs paid by Greece on the EFSF loans;

- An extension of the maturities of the bilateral and EFSF loans by 15 years;

- A commitment by Member States to pass on to Greece's segregated account, an amount equivalent to the income on the SMP portfolio accruing to their national central banks as from budget year 2013. Here it is stated that the countries that receive financial assistance are not required to participate in this scheme up to the moment they receive financial assistance.

It is essential to pay attention to the selection of phrases in the statement, for instance "would be prepared to consider". It is thickly underlined that these "benefits of initiatives" will be offered to Greece in a phased manner and conditional upon a strong implementation by the country of the agreed reform measures in the programme period as well as in the post-programme surveillance period. Besides, the eurozone member states will consider further measures and assistance, including lower co-financing in structural funds and/or further interest rate reduction of the Greek Loan Facility, "if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio".

What is the carrot?

What Greece expected to receive, but will have to work harder for it, was a time extension of 2 years for balancing the budget and for debt reduction - reaching a primary surplus instead in 2014 in 2016, and reaching a government debt of 124% by 2020 and 110% by 2022. At the moment, the targets are 120.5% by 2020, which was a reason for tension between the Eurogroup and the IMF recently in public. Eurogroup chief Jean-Claude Juncker stated then that "there is a growing probability the deadline to be moved from 2020 to 2022". IMF Director Christine Lagarde, however, said "we definitely disagree on this", but that after all what was important was achieving debt sustainability in Greece.

In a statement from November 26th, Mrs Lagarde points out that she welcomes the agreed initiatives and expresses confidence that they will help Greece bring its debt ratio to a sustainable path. In her words, the debt ratio is expected to decrease to 124% of GDP by 2020. "In addition, I welcome the commitment by European partners to bring back Greece's debt to substantially below 110 percent of GDP by 2022, conditional on full implementation of the program by Greece".

This means that the disagreement between the IMF and the Eurogroup remains but is only transferred to Greece's basket. If Athens continues to stick to its commitments, it will get the carrot. In order to sweeten the bitterness of the radish, though, the Eurogroup recommends the member states to undertake the relative procedures to approve the next tranche under the programme of 43.7 billion euros, of which 10.6 billion for budget funding and the rest (23.8 bn) for banks recapitalisation, which have to be paid in December. The rest of the overall amount (130 billion euros) of the loan will be paid in three sub-tranches in the first quarter of 2013, but this will be bound to the implementation of the milestones in the adjustment programme, including the agreed tax reform by January.

The official decision for the release of the money is expected on December 13th, just in time for the EU summit. And quite by the way, it is inserted that this decision will be taken after the national procedures are completed and following a review of the outcome of a possible debt buy-back operation by Greece.

"ESTRAGON (munching). I asked you a question.
VLADIMIR: Aha.
ESTRAGON: Did you answer me?
VLADIMIR: Was the carrot delicious?
ESTRAGON: Very delicious.
VLADIMIR: Very well, very well. (A pause.) What did you want to know?
"

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