Greece: the third economic adjustment programme
The third economic adjustment programme for Greece started on 19 August 2015 and is scheduled to run until 20 August 2018.
The financial assistance of up to €86 billion under the programme is provided by the European Stability Mechanism (ESM).
The conditions for receiving financial assistance include a number of measures and reforms that Greece has committed to implementing in order to address its current economic challenges.
The overall aim of the programme is to secure a return to sustainable economic growth in Greece.
Overview
Greece made an official request for stability support in the form a government loan from the ESM on 8 July 2015. It made the request in order to meet its debt obligations and to ensure the stability of the financial system.
On 8 July 2015, Jeroen Dijsselbloem, Chairperson of the ESM Board of Governors and Eurogroup President, tasked the European Commission with assessing the existence of risks to the financial stability of the euro area, the debt sustainability of Greece and its potential financing needs. This evaluation is necessary before negotiations on a programme can begin.
Following the European Commission's evaluation, carried out in liaison with the ECB and issued on 10 July 2015, the ESM board of governors agreed that the negotiation of a new financial assistance programme for Greece could begin.
Debt sustainability
The debt sustainability analysis for Greece, carried out by the European Commission in liaison with the ECB, concluded that debt sustainability could be achieved through a far-reaching and credible reform programme and additional debt-related measures without nominal haircuts.
In line with the 12 July Euro Summit statement, on 14 August 2015, the Eurogroup confirmed it was ready to consider possible additional measures to ensure that Greece's gross financing needs remain at a sustainable level. These measures might include possible longer grace and repayment periods and will be conditional on full implementation of measures agreed in the programme.
Prior actions
Following the assessment of risk, financing needs and debt sustainability, on 13 July 2015 the leaders of the euro area countries reached an agreement with Greece on a set of prior actions that needed to be implemented in order for negotiations to start on the conditions to be set out in the memorandum of understanding.
The prior actions included:
VAT and pension reform measures
transposition of the Bank recovery and resolution directive (banking union rules)
safeguarding the independence of Greek statistical authority (ELSTAT)
adoption of a Code of Civil Procedure
The Eurogroup agreed to start negotiations on the new programme on 16 July 2015, and the ESM board of governors decided, in principle, to grant stability support to Greece on 17 July 2015.
The agreed prior actions were implemented by 14 August 2015.
Memorandum of understanding - approval of ESM financial assistance
The ESM board of governors approved the memorandum of understanding, specifying the reform policies which Greece is expected to fulfil, on 19 August 2015, after it was endorsed by the ESM member states in accordance with their national procedures.
On the same date the board of governors also approved the loan agreement (the Financial assistance facility agreement).
Greece's programme: key points
The reforms agreed in the memorandum of understanding can be grouped into four main strands:
restoring fiscal sustainability
safeguarding financial stability
implementing reforms conducive to growth and jobs
modernising the government sector
Among other agreed conditions, Greece has committed to make full use of the available EU technical assistance for designing the reforms. Such technical assistance is coordinated by the new Structural Reform Support Service (SRSS) of the European Commission.
Restoring fiscal sustainability
Greece is expected to target a medium-term primary surplus of 3.5% of GDP. It is to be achieved primarily through:
fiscal reforms, including reforms of the VAT and pension systems, supported by an ambitious programme to strengthen tax compliance and public financial management
fighting tax evasion, while ensuring adequate protection of vulnerable groups
The agreed fiscal adjustment path to achieve the primary surplus is as follows:
-0.25% in 2015
0.5% in 2016
1.75% in 2017
3.5% in 2018
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page source http://www.consilium.europa.eu/
