A sip of malodorous air for Greece
Adelina Marini, 4 July 2011
Consultations are underway with Greek lenders in order to define the modalities for voluntary private sector involvement with a view to achieving a substantial reduction in Greece's year-by-year financing needs, is said in a statement of the euro area ministers of finance after their two-hour video meeting on Saturday (July 2) evening. The beginning of these consultations has been agreed by EU leaders during the June European Council on June 23/24 in Brussels, as the condition was firstly the Greek Parliament to endorse a new austerity programme.
Although unable to reach national unity, of which the EU insisted, the Parliament has approved the programme, thus clearing the path for the eurozone finance ministers to agree to release the fifth tranche of the rescue package for Greece, worth 8.7bn euros. Now it is expected the International Monetary Fund to approve its share in the rescue package of 3.3bn euros.
In their statement the ministers have written that they expect a selective default to be avoided. "The precise modalities and scale of private sector involvement and additional funding from official sources will be determined in the coming weeks so as to ensure that, inter alia, required program financing is in place". In spite of the blurred language of the document, it becomes clear that the negotiations on the second bailout package is postponed indefinitely, although during the European Council on June 23 a consensus has been reached this package to be agreed on July 11. This date is absent in the statement of July 2.
The New York Times though, quotes an anonymous representative, who is familiar with the negotiations on Saturday evening, according to whom "we don’t expect an agreement before the next meeting of the euro zone ministers on July 11, and possibly not before September". It is still not clear how will the markets react to these development for Greece, which is important to define whether the country will get a sip of air or not.
In the meantime, though, in an interview with the German magazine Focus, Eurogroup leader Jean-Claude Juncker reveals that "the sovereignty of Greece will be massively limited" after a team of experts from the euro area will leave for Greece. "For the forthcoming wave of privatizations they will need, for example, a solution based on a model of Germany's 'Treuhand agency'", created after the fall of the Berlin wall that sold off 14,000 East German firms between 1990 and 1994.
According to Reuters, a repeat of Germany's Treuhand experience may prove bitter for the Greeks, because the agency instead of ending its mission with profit, it ended up with a huge deficit and a loss of many jobs. In 1990 four million Germans were employed in Treuhand companies, but only 1.5mn jobs remained in place when the agency was closed in 1994, Reuters recalls.
The privatisation of Greek assets was one of the conditions for the first bailout of 110bn euros last year, but the process is going on slowly. With the new austerity programme, voted by the Greek Parliament, the creation of a privatisation agency is envisaged which is expected to gain 50bn euros from assets sale.
What does the loss of sovereignty mean, of which Jean-Claude Juncker talks, is not clear from his interview for the German magazine, taken before the eurozone ministers meeting and published on Sunday. In the Eurogroup statement, however, it is pointed out that Greece should invest efforts in structural reforms and privatisation, which "will be supplemented by large-scale technical assistance, provided by the Commission and Member States". According to Juncker, Greece has serious troubles with its system of tax collection too, which means that the "technical assistance" might touch this area of Greece's sovereignty too.