21 FEBRUARY 2012

The new €130 billion loan agreement  to Greece until 2014, was endorsed by EuroGroup ministers in Brussels yesterday following a 12 hour marathon meeting and « the provision of assurances by the leaders of the two coalition parties » that the € 3.3 billion spending cut program voted by their Parliament on February 9th to reduce the public debt  by 1.5% of GDP in 2012  will be implanted «  beyond the forthcoming general elections« due in April  according to the Group‘s communication. In addition, Greek authorities agreed to € 325 million « structural expenditure reductions to close the fiscal gap» on the same deadline.

The latest efforts,  the sixth austerity program since April 2010,  still leave the bailed-out state with a projected public debt ratio of 120.5% of GDP by 2020. However, the « precise amount » of the financial package disbursement « in early March« , is still conditional to the results of the Private Sector Involvement (PSI) and the implementation of  « prior actions » in other words the country's privatization program. In this context, the next critical deadline for Greece, March 20th, remains on the agenda due to the country's €14.5 billion bonds redemption obligations.  Greek bond holders, part of the PSI, agreed to a 53.5% reduction, known as a « haircut », a loss which was expected to amount to 70% but which under the current terms reduces the country‘s € 350 billion debt by €100 billion. 

The EuroGroup's inflexible tone obliges  the bailed-out state « to return to a primary surplus as from 2013, » and to fully implement its privatization program.  The conditional green light includes the designation of two watchdogs to ensure Greece's compliance with its financial obligation, the Task Force for Greece for technical assistance « through an enhanced and permanent presence on the ground » and the European Commission (E.C.) for « on-sight monitoring » of the program's implementation. In addition, a segregated account, under monitoring of the TROIKA, will ensure appropriate usage of the financial package. The Greek political leaders also proposed, within the next two months, to introduce in their legal framework « a provision ensuring that priority is granted to debt servicing payments«, a commitment  to be included in their Constitution « as soon as possible«. 

According to the EuroGroup's statement, the new program « main goals » are to ensure that debt becomes sustainable, and that competitiveness is restored while acknowledging the «  significant efforts already made by the Greek citizens ». The latest plan includes the reduction of wage and non-wage labor costs (20-40% pay cut, minimum pay reduction to € 580/month, youth's wage reduction and pension cuts) and was met with demonstrations last week in Athens where acts of violence left the capital city center severely damaged.

The EuroGroup's decision process was cancelled last Wednesday following six Greek government ministers resignation in disagreement over the  plan, and the extreme right LAOS party's rejection of the austerity program. Mr. Jean-Claude JUNCKER, EuroGroup president had unequivocally warned Greece that there would be « no disbursement without implementation » of previous commitments. A written pledge produced by Greek political leaders had unlocked the then-stalled negotiations.