Ireland promised euro zone support to ease exit from bailout
Eurogroup head says measures will be in place for Ireland as Greece faces third rescue
Jeroen Dijsselbloem, the Netherlands’s finance minister and president of the Eurogroup, said there would be support measures to smooth ireland’s exit from bailout. Photograp: Jock Fistick/Bloomberg
Ireland will get euro zone support to smoothly exit its bailout programme at the end of this year, the head of euro zone finance ministers Jeroen Dijsselbloem told the European Parliament today.
“Ireland’s performed very well in its programme and will exit the programme, but there will be measures to support its gradual exit,” he said.
“I can’t give you any details on the way that will be formed yet ... but there will be support to make sure that it is a good exit and not a temporary exit,” Mr Dijsselbloem said.
The euro zone is also likely to decide on a third bailout for Greece in November, after international inspectors finish an assessment of Greece’s struggles to carry out painful reforms, officials said.
“As far as the potential need for a third programme for Greece is concerned, it’s clear that despite recent progress, Greece’s troubles will not have been completely resolved by 2014,” Mr Dijsselbloem told the European Parliament today.
“It is realistic to assume that additional support will be needed beyond the programme. In this context, the Eurogroup has indicated clearly that it is committed to providing adequate support to Greece during the current programme and beyond until it has regained market access,” he said.
The International Monetary Fund and Greece estimate that Athens will need €10-11 billion in new financing in 2014-2015 above what the euro zone and the International Monetary Fund have agreed to so far.
This is partly because euro zone central banks refused to delay repayment of Greek government bonds, contrary to an assumption by euro zone finance ministers, the Eurogroup, when they set up the current bailout.
Greece is still deep in its worst post-war slump, and the sale of state assets is well behind plan.
Greece has already had two international bailouts since 2010, and more money for it is controversial in Germany which has elections on September 22nd. Voters there are tired of helping others after three years of the sovereign debt crisis.
Greece will not need any additional funds until the second half of 2014, but a decision must be taken in November at the latest because the IMF can only participate in the Greek bailout if the programme is fully funded 12 months ahead.
The next review of the reforms that Greece has committed to in exchange for the €172 billion financial lifeline last year, will start in late September and take several weeks to complete. It is written by inspectors from the IMF, the European Central Bank and the European Commission.
“Once this is completed, we will have an overview ... of the financing of the current programme and we will have this on our agenda the next month and finalise the process in November,” Mr Dijsselbloem said.
He declined to confirm that the missing funding for Greece would be in the form of new loans, but the euro zone seems to have little choice.
A senior EU official said that other options included an early return to markets by Greece with a short-term bond and re-assigning unused bailout funds earmarked for the recapitalisation of the Greek banking sector.
Yet the IMF believes the euro zone will have to go even further than new financing, by providing some form of debt relief to Greece, whose ratio of debt to economic output is to peak at 175-176 per cent this year.
In July, the IMF estimated that Athens will also need a debt reduction of some 4 percent of gross domestic product in 2014-2015 if the country is to meet its goal of cutting the debt pile to 124 per cent in 2020 and well below 110 per cent in 2022.
Euro zone finance ministers are ready to discuss some help on debt for Greece after April 2014, when the EU publishes official debt and deficit data for 2013, providing Greece meets all its reform targets.
The ministers agreed last December however, that such relief would be limited to cutting the interest on the €53 billion of bilateral loans extended under the first bailout as well as further reducing the amounts that Greece has to contribute to European Union-funded projects in the country.
But the interest reduction on the bilateral loans would yield only very small amounts.
“Greece pays interest of three-month EURIBOR of 0.22-0.23 per cent, plus a 0.5 point margin. If you take that margin away, that’s how much Greece can get - that’s €265 million,” one euro zone official involved in the discussions said.
Greek debt now stands at around €305 billion, or 160 per cent of GDP. Most of that Athens owes to the euro zone. Yet the euro zone is not prepared simply to forgive Greece some of the debt.
“There will be no haircut to the nominal value of the loans, it will not happen,” a second euro zone official involved in the Greek talks said.
“I cannot see it happening, it is politically impossible to imagine. If loans were to be turned into grants, it would so fundamentally change the nature of the Greek support programme, that I do not see any readiness to do that,” the official said.
The official added that if Greece were forgiven debt, other euro zone countries like Ireland, Portugal or Spain, which received euro zone support, could demand the same. (Reuters)