Finance ministers take time-out over Greece

Ministers place binding obligations on Greece, while Assessment reports due in mid-March.

The eurozone’s finance ministers have tried to buy themselves a month’s breathing space in their struggle with the bond and currency markets over Greece’s public finances.

The stage has been set for another show-down in mid-March, when meetings are scheduled of the finance ministers of the eurozone (15 March) and the EU (16 March). Greece will deliver its own assessment by 16 March of how well its deficit reduction is going.

The European Commission and the European Central Bank (ECB) will also give an assessment in mid-March of whether further measures are needed in addition to those approved by EU finance ministers on Tuesday (16 February).

Ministers on Tuesday placed binding obligations on Greece to reduce its deficit by four percentage points this year and to bring it below 3% of gross domestic product by 2012. They also adopted a list of structural reforms that Greece should implement to remedy its public finances, including reductions in civil service recruitment, a pay freeze for the civil service, tax reform and a steep cut in the number of Greek municipal authorities.

The ministers told Greece to prepare “additional measures” that could be quickly introduced, if necessary, to reach the four percentage point cut, including raising value-added tax, placing excise duties on luxury goods and cars and increasing taxation on energy.

Greek commitments

Greece has committed itself to implementing the additional measures if called on to do so by the Eurogroup, the finance ministers of the eurozone. “To the extent that…risks materialise, the Greek government shall announce further measures,” George Papaconstantinou, Greece’s finance minister, said.

Jean-Claude Juncker, the president of the Eurogroup, said on Monday (15 February), however, that eurozone governments reserved the right, in an extreme scenario, to “impose” measures on the Greek government, using a voting procedure that would exclude Greece.

Officials from the Commission and the ECB will travel to Athens in the coming days to assess Greece’s progress in bringing down its budget deficit. Olli Rehn, the European commissioner for economic and monetary affairs, said that the officials would be on the ground by the beginning of next week, at the latest, and that they would work with officials from the International Monetary Fund who are providing support to the Greek government.

The finance ministers’ agreement appeared to have reduced concerns on the markets that Greece could default on its debt. The euro rose sharply after Tuesday’s meeting, before falling back slightly yesterday (17 February). Having hit a nine-month low against the dollar of $1.35 last Friday, it had recovered yesterday to $1.37.

Greece, meanwhile, called for governments to finalise the details of how financial support would be provided in the event that it does need to be rescued from default. At an EU summit last Thursday (11 February), leaders of the EU’s national governments agreed that they would take “determined and co-ordinated” action to save Greece if, having fully implemented agreed economic reforms, the country is nevertheless at risk of collapse.

Papaconstantinou said that an “explicit message” on how support would be provided was the “most logical” way to reassure markets.

Rehn has given Greece until Friday (19 February) to respond to allegations that previous Greek governments illegally used complex financial instruments (known as credit default swaps, or CDS) to keep part of the country’s budget deficit off its balance-sheet.

“If it turns out there is such a kind of securitisation or swaps which are not in line with the rules, then of course we need to take action,” Rehn said.

The Greek government has said that the financial instruments that were used by Greece were “fully legal and well known”.