BLBG: European Commission Accepts Greek Economic Measures After Review
(Bloomberg) -- Greece’s package of new economic measures is good enough to proceed toward concluding an extension of the country’s bailout, according to the European Commission.
In a letter to Jeroen Dijsselbloem, who heads meetings of euro-area finance ministers, Commission Vice-President Valdis Dombrovskis and Commissioner Pierre Moscovici said that a careful review for the proposals had followed “constructive exchanges” with the Greek government over its reform efforts.
“This list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review as called for by the Eurogroup at its last meeting,” they said in the letter released Tuesday in Brussels. “We are encouraged by the commitment to combat tax evasion and corruption.”
Based on the provisional agreement between Greece and its official creditors on Feb. 20, the approval of the list is a condition for extending the availability of bailout funds for another four months. The current program, which has been keeping Europe’s most indebted state afloat since 2010, was scheduled to expire at the end of this month.
The list of commitments, submitted minutes before the midnight deadline on Monday, includes maintaining current state-asset sales, consolidating pension funds to reduce costs and revamping tax collection and administration.
The commission, the European Central Bank and International Monetary Fund assessed the list before it goes to the euro-region group of finance ministers for approval. Dutch Finance Minister Dijsselbloem was scheduled to convene a conference call of his fellow euro-area finance chiefs at about 2 p.m. Brussels time to discuss the Greek proposals.
Markets Gain
Yields on Greek three-year bonds extended declines, dropping 262 basis points to 12.44 percent, the lowest since the day before the new government was sworn in on Jan. 27. Stocks also rallied, with the ASE index jumping 8.1 percent as of 3:15 p.m. in Athens.
“It ticks a few important boxes particularly regarding pension reform, fiscally neutral reforms and independence of the public revenue secretariat,” Dimitris Drakopoulos, an analyst at Nomura, said by e-mail. “That said, the problem in our view was always going to be implementation of specific reforms and the ability of this government to close a review.”
Greek Finance Minister Yanis Varoufakis sent the draft measures, which also include legislation on non-performing bank loans and the labor market, to the institutions. Dijsselbloem said it arrived “just in time.”
Short Reprieve
Approval of the Greek plans would offer a short reprieve for the country, which risks defaulting on some of its liabilities as early as next month without further financing from the creditor institutions
At the same time, Prime Minister Alexis Tsipras must try to avoid defections within his anti-austerity Syriza party after it won power on pledges to take back control of Greece’s finances.
“Greece in my mind is part of the international grid and if you want to remain in the grid then ultimately you have to conform,” Larry Fink, chief executive officer of BlackRock Inc., the world’s largest money manager, said in an interview with Charlie Rose aired this week. “It looks like a win with the new government, but the Europeans can say they held steadfast. This in most circumstances will work out.”
National Votes
If approved by the finance ministers, the package needs to be put to national parliaments for formal consent. Lawmakers and officials in Germany, Finland and the Netherlands signaled they won’t stand in the way once their governments grant consent for the aid extension.
German lawmakers will vote on Feb. 27, Michael Grosse-Broemer, Chancellor Angela Merkel’s parliamentary whip, told reporters in Berlin on Tuesday. The Finnish government said in a statement on its website Tuesday that the Greek list was comprehensive enough to grant the extension.
“This compromise deal, given that it will be finally approved and validated by the national parliaments in the next few days, is a positive development for Greece and the capital markets as it removes the imminent threat of ECB pulling the plug on the Greek banks,” Vangelis Karanikas, head of research at Athens-based Euroxx Securities wrote in a note to clients.
Tsipras, 40, has said the agreement “cancels austerity” and annuls pledges by the previous government to cut wages, pensions and state employees and increase sales taxes.
Some Room
The agreement permits Greece to lower previously agreed upon targets on a primary budget surplus, which doesn’t include interest payments on debt. That could give Tsipras some room to at least come good on some pre-election pledges.
In return, though, the Greek government will refrain from unilateral action that may risk budget goals and not annul most economic reforms included in the bailout agreements.
“The agreement includes several concessions by the Greek side, but it also enables the government to save face internally,” analysts at Athens-based Eurobank Equities, including Nikos Koskoletos, wrote in a note to clients dated Feb. 24. “The agreement does not address the coverage of Greece’s financing needs, especially in the context of the present tight situation as regards available cash buffers.”
To contact the reporters on this story: Nikos Chrysoloras in Athens at nchrysoloras@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net
To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Rodney Jefferson
