The Greek bailout is here, and we have the details:
The financial package makes available € 110 billion to help Greece meet its financing needs, with euro area Member States ready to contribute for their part € 80 billion, and the rest provided by the IMF. The first disbursements will be made available before the payment obligations of the Greek government fall due on 19 May.
Euro area financial support will be provided under strong policy conditionality, on the basis of a programme which has been negotiated with the Greek authorities by the Commission and the IMF, in liaison with the ECB.
The programme will include the following measures:
- Greece is subject to a check by IMF/EU each quarter;
- 5pc point reduction in fiscal deficit in 2010;
- Goal is to drive deficit down to 3% of GDP by end-2014;
- Debt-to-GDP ratio is forecast to grow from 115% to 140% (but these are the Maastricht numbers. Add some 10pc point to get the total debt);
- Individual measures include, another increase in VAT from 21 to 23% (plus increase for smaller VAT rates), 10% increase in excise taxes on fuel, cigarettes and drinks, a windfall tax, a property tax, near abolition of 13 and 14th month pay in the public sector, cut of Christmas and Easter bonuses, cuts in pensions, reducing early retirement.
The shortcomings of the plan according to Eurointelligence:
- No public sector layoffs, or change of status of public sector job;
- No complete removal of 13/14th month salary in public sector;
- No removal of 13/14th month salary in private sector, meaning more unemployment;
- No immediate privatisation of state companies;
- No change to rule that caps dismissals to 4% of workforce, and no change to firing costs;
- No anti tax-evasion mechanism.
I would also recommend reading an interview with one of my favourite philosophers, Jürgen Habermas, on the Greek bailout, the institutional challenges, and the German intransigence.
Posted in Budget and Finance, EU Reform, Institutional Affairs, Internal Market
Tagged agreement, bail-out, conditionality, details, European Central Bank, eurozone, Greece, IMF, Jürgen Habermas, loans
Greece has formally asked for financial assistance under the EU-IMF joint financial package.
The Greek finance minister, George Papaconstantinou, has sent a letter to Eurogroup President Jean-Claude Juncker, EU economy commissioner Olli Rehn and European Central Bank President Jean-Claude Trichet, requesting the activation of the support mechanism.
The request for aid must first be approved by the ECB and the European Commission. Then it must be approved unilaterally by all eurozone Member States.
We now have some details on the bailout package for Greece. The program will be managed jointly by the European Commission, the European Central Bank, and the International Monetary Fund. The program will cover a three-year period. The euro area Member States are ready to contribute up to € 30 billion in the first year to cover financing needs. Financial support for the following years will be decided upon the agreement of the joint program. In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted on non-concessional interest rates. The pricing formula used by the IMF will be used benchmark for setting Euro area Members States bilateral loan conditions with some correction. The initial price of credit will be around 5% p.a. for a three year fixed-rate loan.
But what will be the effect of this program? One thing is certain: it will alleviate current pressures on the eurozone. But at least two commentators (Wolfgang Münchau and The Pragmatic Capitalist) say that this will only kick the can down the road. Wolfgang Münchau is more specific: he believes that Greece will eventually default. He criticizes the EU for not providing a generalised crisis resolution regime.