24 October 2013

Kathimerini: Greece can choose its government, but not its economic policy

Responding to a question from SYRIZA MP Nadia Valavani during a conference in Lithuania last week, VP Rehn confirmed that Greece's fiscal monitoring would not end when its bailout expires, regardless of whether that is next summer, or if a third package is needed.

If SYRIZA tries to diverge from Eurozone’s “economic orthodoxy”, then Greece will be taken to the European Court of Justice, asked to pay heavy fines, while even EU subsidies from the new Multiannual Financial Framework (2014-2020), will be suspended. From 2014 onwards, these subsidies (structural and regional funds) will be tied to macro-economic conditionality “in order to ensure that their effectiveness is not undermined by unsound macro-economic policies and that they can be redirected to address the economic challenges a country is facing", as Rehn has said in February. Potential losses from EU funds will offset any theoretical gains from an expansionary fiscal policy.

Failing to comply is basically impossible for Greece. This is because a eurozone-specific piece of legislation (the “two pack”), requires "Member States to submit their draft budgetary plan for the following year to the Commission and the Eurogroup before 15 October, along with the independent macro-economic forecast on which they are based. If the Commission assesses that the draft budgetary plan shows serious non-compliance with the aforementioned rules, the Commission can require a revised draft budgetary plan."

Besides this, eurozone Member States, like Greece, which have sought financial assistance from the European Financial Stability Facility, will have the Commission standing over their finance ministers, until they repay most of these loans.

According to Article 14, of EU “Regulation No. 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability": “a Member State shall be under post-programme surveillance as long as a minimum of 75 per cent of the financial assistance received from one or several other Member States, the EFSM, the ESM or the EFSF has not been repaid. The Council, on a proposal from the Commission, may extend the duration of the post-programme surveillance in the event of a persistent risk to the financial stability or fiscal sustainability of the Member State concerned. The proposal from the Commission shall be deemed to be adopted by the Council unless the Council decides, by a qualified majority, to reject it within 10 days of the Commission's adoption thereof.”

What does this “post-programme surveillance” actually mean? That “the Commission shall conduct, in liaison with the ECB, regular review missions in the Member State under post-programme surveillance to assess its economic, fiscal and financial situation. Every six months, it shall communicate its assessment to the competent committee of the European Parliament, to the EFC and to the parliament of the Member State concerned and shall assess, in particular, whether corrective measures are needed.”

In Greece’s case, this means that the surveillance will be in place for at least another 25 years. Athens has so far received €133.04 billion from the European Financial Stability Facility (EFSF). The EFSF is due to pay out another €10.66 billion, until the summer of 2014. The average weighted maturity of the bonds is 30.48 years, but this could be extended next summer, in the context of Eurogroup’s decision of November 2012, to make Greece’s debt more manageable. Greece has also received €52.9 billion in bilateral loans from its eurozone partners. This will also have to be paid back as part of the process of exiting fiscal surveillance.

In short, if the next Greek government wants to follow a loose fiscal policy, and still keep the country in the eurozone, then we can only wish it “good luck". It’s going to need it.

Full article

© Kathimerini