The assessment that the end of the adjustment programme does not constitute a release from obligations undertaken by the Greek authorities vis-à-vis the European partners and the International Monetary Fund -especially as the country’s creditworthiness remains very low- notes the interim report of the Bank of Greece, which was handed over to the President of Parliament Nikos Voutsis, the Governor of the Bank of Greece, Giannis Stournaras.
“Obligations remain and must be respected. What will change is the supervisory framework, which will meet the general conditions and supervisory regulations in force in the European Union”, the report reads.
As is written in the Interim Report on the Economy, the specific supervision to be applied in Greece can be simple or enhanced depending on developments. In particular, EU Regulation 472/2013 initially provides for an ipso facto post-programme surveillance on the Member State until it repays 75% of its loans from other euro-area Member States, the European Monetary Fund Stability (EFSF) and the European Stability Mechanism (ESM).
Article 14 refers to “simple supervision”, the precise content of which is not fully specified. In any case, the European Commission always has the right to exercise enhanced supervision if it considers that there is such need.
“Enhanced supervision” means very close monitoring of the Member State’s financial data and the state of the banking system, regular visits by the Institutions and quarterly progress reports.
The Bank of Greece notes that Regulation 472/2013 also mentions the possibility of provisionally providing “preventative support” in the form of a credit line, aimed at securing the liquidity of the Member State as it is restored to its relationship with the markets . This mechanism was not put into operation in the case of Portugal, Ireland and Cyprus.
However, in these three cases (and unlike in Greece), the EDP excessive deficit procedure (from which Greece exited a few months ago) was still in force. The EDP was in force for Portugal from 2009 to 2017, for Ireland from 2009 to 2016 and for Cyprus from 2010 to 2016.
The details of “preventative support” are set out in the specific guidelines of the EMN. In particular, two types of preventive support are foreseen:
(a) Precautionary Conditioned Credit Line (PCCL), without enhanced supervision,
and (b) Enhanced Conditions Credit Line (ECCL), with enhanced supervision and borrowing.
Both credit lines are created for an initial period of one year and may be renewed twice, each time for six months. While the PCCL is not used (ie the funds available are not drawn), it does not imply “enhanced supervision”, meaning its granting does not impose new policy measures. However, if the credit is used, then the Member State goes into enhanced surveillance. In this case, a series of measures are envisaged by the Member State in consultation with the Institutions, which carry out regular evaluation visits in order to ascertain progress in the implementation of these measures.
The provision of a Preventive Credit Line under conditions requires a “Memorandum of Understanding” with the Institutions.
In contrast, the Enhanced Credit Line is always followed by strengthened supervision and is intended for Member States that still have problems. The Member State agrees to take corrective action to address its weaknesses, in consultation with the Institutions.
Granting a Credit Line under Enhanced Conditions also requires a “Memorandum of Understanding” with the European Commission, the ECB and possibly the IMF. The Institutions also carry out regular evaluation visits to ascertain progress in the implementation of the adopted measures.
In conclusion, with the end of the adjustment programme in the summer of 2018, Greece will be under supervision, and joining a “preventative support programme” in each case implies signing a “Memorandum of Understanding” and periodic visits by the Institutions.
The debt on the table
At the same time, measures to ensure the medium- and long-term sustainability of the Greek government debt on the basis of the Eurogroup decisions of June 2017, may be accompanied by specific conditions and commitments on the part of the Greek side -in addition to those imposed by Regulation 472/2013 and relevant ESM instructions.
In this case, the Greek side should be ready to submit its own binding proposals for development measures that the country needs anyway. Economic policy actions that improve the country’s creditworthiness to exit markets on sustainable terms are considered imperative, whether scheduled or not…/IBNA