As expected, Greece was the topic the eurozone finance ministers dealt with at their meeting last night. Greek Finance Minister Evangelos Venizelos has informed his colleagues in details about the latest developments. Perhaps they have been told the name of the new Greek prime minister, which had been agreed the day before by the leaders of both major political parties, PASOK and New Democracy, George Papandreou and Antonis Samaras.
Eurogroup President Jean-Claude Juncker said that the new government had to confirm in writing the country's commitments under the second rescue programme, in order Greece to receive the next tranche of its current loan. "I believe it is possible that the sixth tranche can be disbursed in the course of November on the condition that there is a clear and unequivocal commitment by the new government and that it expresses its clear will to work towards a second programme," EU Economic and Monetary Affairs Commissioner Olli Rehn said.
He was attacked by a Greek journalist with the question whether the European Commission and the Troika as a whole should share the blame for the situation, given they had been working in Greece for two years. In response, Commissioner Olli Rehn noted that in the beginning the Commission did not even have correct data on the actual situation in the country, which became available after the reform of the statistical office. He gave as an example the problem of tax collection, explaining that whatever expert help was provided by the Commission and the member states, the responsibility belonged to the Greek authorities:
"We have warned about the problems related to the fight against tax evasion for two years. In every report we have raised this, and we have underlined the importance of taking appropriate measures in order to fight tax evasion, which is indeed a serious sickness of the Greek society and economy." Olli Rehn said he expected the new government to take this problem more seriously and added: "But ultimately, the responsibility lies in the hands of the Greek government and, in a way, the whole Greek society, so that it's up to every citizen to fight against corruption and to fight against tax evasion."
Like his Greek counterpart, Italian Finance Minister Giulio Tremonti has also reported on the situation in his country. Answering a journalist's question whether national unity was also expected from Italy, like in Greece, Eurogroup President Juncker said: "We were not asking for national unity in Italy, because Italy is not under a programme ... What we are expecting from Italy is that Italy will implement all the measures which have been announced in Silvio Berlusconi's letter to both the president of the Council and the President of the Commission."
Commissioner Rehn added: "It is crucial to implement the fiscal policies as outlined in the letter of the prime minister and accelerate structural reform ... this is now the main task of Italy." Olli Rehn explained that he had sent to Rome a detailed questionnaire related to the implementation of the government programme and expected the answers by the end of the week. These days in Rome will arrive a mission of the European Commission, while the regular IMF monitoring, agreed at the G20 summit in Cannes, will start by the end of the month.
Asked whether he was aware of the desire of the Portuguese government to renegotiate its programme with the EU and the IMF, Mr Juncker said that he had learnt this from the media, but the issue was not raised by the Finance Minister. The president of the Eurogroup expects the Portuguese authorities to discuss the matter with him during his visit to Lisbon this week.
EFSF director Klaus Regling reported to the ministers on how work was going on on ‘maximising fund's efficiency’, which means increasing its resources without increasing the guarantees paid by euro area countries. As you know, there are two options that can be applied separately or altogether. One is the fund to provide partial risk protection by insuring part of the newly issued bonds of eurozone countries. Another option is to attract private investment, which was previously known as "special purpose vehicle" but, as Jean-Claude Juncker explained, it already had a new name: "I was told that I should forget about a special purpose investment vehicle and the new wording is a co-investment fund." Currently the EFSF is consulting with market participants to achieve the most effective arrangements. New options are expected to be approved by the Eurogroup by the end of November and to be implemented in December, Mr Juncker said.
Klaus Regling explained how the two options to optimise the fund's functionality would work. The insurance option aims to reduce risk and increase the demand for new debt issuance in the euro area, so ultimately to reduce the funding cost. To that end, to each new bond a certificate of partial risk protection will be attached, issued by the EFSF with the same maturity. The bond and the certificate will be sold to investors as a package, although there is an option later the certificate to be detached and to be traded freely. But in case of a default, the payment of the certificate (the insurance) will only be possible if the investor presents the bonds too. Thus, the certificates issued by the EFSF will not become the so called ‘naked’ CDSs.
As to the second option, one or more investment funds can be created, combining public and private funds. Klaus Regling did not comment on any potential interest in participating in such funds. During the G20 meeting it became clear that potential investors such as China and Russia, for example, were cautious about the idea. Regarding the possible involvement of the IMF in such a fund, the IMF managing director Christine Lagarde said in Cannes: "The IMF lends to countries, not to legal entities, so the IMF would not lend to the EFSF, would not join in the EFSF ". When the EFSF intervenes in a particular country, then the IMF can be its partner, Ms Lagarde said.
However, she gave journalists a hint where to seek the possibility for an IMF involvement in the G20 Summit conclusions: "There is probably a reference to the trust which is a structure that captivates people because it looks a little bit like an SPV. The trust - something that is off balance sheets, that is separate in a way, and yet administered by the Fund, by the Board of the Fund. Then there is the administered account that operates differently from the general resources of the Fund." The part of the conclusions, related to the IMF resources, which Ms Lagarde probably had in mind reads: "We stand ready to ensure additional resources could be mobilised in a timely manner and ask our finance ministers by their next meeting to work on deploying a range of various options including bilateral contributions to the IMF, SDRs, and voluntary contributions to an IMF special structure such as an administered account."
On Monday night in Brussels, Klaus Regling also mentioned the possibility of the so-called ‘co-investment fund’ to be "channelled through an IMF trust fund or an administrative account."