27th February 2015

Greek list of reforms approved, the bailout program lives on

As provided by the agreement between Greece and the Eurogroup on Friday 20 February, the Greek government submitted its draft list of reforms on Monday 23 February. The European Commission informed shortly before midnight that the list had landed in the Berlaymont, despite earlier indications that the Greek authorities will not be ready with the draft until the following morning. The Commission quickly assessed the list and concluded that it was sufficiently comprehensive to serve as a starting point for negotiations on a final list. The eurozone finance ministers held a conference call later in the afternoon on Tuesday and informally approved the draft list. Following successful vote in some of eurozone´s national parliaments, e.g. the German Bundestag, the Greek bailout program was later last week prolonged for a period of four months. The EC, ECB and IMF, formally known as Troika - an expression now omitted due to its negative connotations in Greece, will now work with the Greek authorities to fine-tune the reforms. If a deal on the reforms is reached by the end of April, Athens will be entitled to the outstanding tranche of the bailout, some €7 billion that it needs badly, not least because some €3 billion-worth part of the IMF loan is due to be paid during the summer.

Meanwhile, experts speculate about the possibility of a third bailout for Greece. Even after the second program´s extension, Greece will likely still be unable to finance itself via capital markets. Its debt payments are not as high as the enormous sovereign debt, some 175% of GDP, indicates. In fact, majority of the debt is now held by institutional creditors, mostly by the eurozone governments. These loans have a very long maturity and very favorable interest rates. If Greece manages to run a sufficiently high primary fiscal surplus, it may not need access to capital markets. In such case a mere emergency line, a pre-negotiated loan to be used in case of trouble, may be enough for Athens. If, however, such solution is insufficient, Greece will be forced to ask for another bailout. And, as the previous two ones, the third one will not come without certain conditions. It is, however, these conditions that have made the program so controversial in Greece, as they are perceived as loss of sovereignty. It is certain, therefore, that Mr Tsipras´s government will try hard to avoid anything similar.

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Members of the American Chamber of Commerce in the Czech Republic