A tight leash even after the Memorandum

Anyone (and there can’t be that many) who expected that with the second Memorandum programme drawing slowly to a close, Greece would soon emerge from under the tight scrutiny of the European Commission and the IMF are likely to be disappointed.This despite the relatively positive comments from the European Commissioner for Monetary affairs, Olli Rehn who in a change of tone gave his tacit approval to the use of a portion of the primary budget surplus achieved for 2013 for social spending.“Greece has delivered a significant primary surplus and as part of this agreement we have agreed that there will be a stepping up of efforts to…protect the vulnerable,” he was reported to have told reporters. However he made clear that the priority remains on consolidating the budget, while the Commission has yet to give its precise figure for the level of the primary surplus achieved. The Greek government claims that it is close to 3 billion euros.While the full text of the recent agreement struck between the government and the troika over the review of the adjustment program has not been released, it is clear that it will include a range of government commitments necessary for the disbursement of the next loan tranches, on a timeframe that extends well beyond 2014.

According to capital.gr (link in Greek) these include: reassessment of the issue of mass layoffs in six months, a new round of public sector layoffs in 2015 (the specifics of which are to be defined by the government), the implementation of market reforms proposed by the OECD, the opening of ‘closed professions’ and reform of indirect taxation of third parties, among others. These extend beyond the timeframe of financial assistance from the EU, which is theoretically due to end in the second quarter of 2014.

The evaluations have by no means ended, according to reports with assessments for the release of the remaining loan tranches still to come. It should be noted that the last 500 million scheduled for July 2013 was approved after a delay of six months in December. In total there remain 3 quarters of tranches to be disbursed worth 11.7 billion euros from the EU.

So until they are exhausted, the EU will be in the position to audit the government’s progress and approve or refuse to disburse the loan tranches. For a year after that the IMF will continue to give loans (1.8 billion per quarter) and will also have an oversight role. In theory, say officials, the EU will also be able to exert pressure.

It is worth noting in any case that commitments for a 3% primary surplus to be achieved by the Greek government now extend to 2016. According to a statement released by the troika, the government has committed to measures to secure the surplus in 2015 including the extension of certain tax measures such as the emergency ‘solidarity’ tax.

The plan to cover the fiscal gap

According to Euro2day (link in Greek), the Finance Ministry’s plan to cover the fiscal gap (necessary to secure IMF funding) – which has been estimated at 4.5 billion is based in two pillars:

1.) Raising 3 billion euros in capital through domestic loans from state bodies that have a accessible funds. Reports state that from the 12th of March the Public Debt Management Agency has already raised 900 million from repos while at the end of the month the same practice will be used to raise another 1 billion euros.

2.) From payments worth 1.7 billion euros from the banks Piraeus and Alpha for the buy-back of the preferred shares in the banks held by the state. Both banks have announced plans to buy back their shares.

In short, the government will have to continue to meet its fiscal targets and, crucially, implement the structural reforms long demanded by the troika whether or not a new Memorandum is in the offing.