Greece dominated headlines around the world last year. Now the Athens government has a third rescue package in its hands worth up to 86 billion euros but this comes with one commitment. It has to implement a package of painful and unpopular reforms. Is this realistic for a country in its sixth year of recession?
Point of view
Greek debt is currently benefiting from very favourable conditions, very low interest rates, very high maturities and a grace period for the most principle interest, so currently Greece is now paying less on its debt servicing than some other countries like Italy or Portugal.
To discuss this, the impact of the Greek crisis and the other big challenges to Europe’s economy, is the EU Commission Vice President in charge of the Euro and Social dialogue, Valdis Dombrovskis.
Euronews: Vice President are you sure that we are not going to face another Greek crisis this year?
Valdis Dombrovskis: “Well, certainly we see the situation with the Greek programme is broadly on track and also the attitude of the Greek government has changed since the middle of the year. So we have agreement on a third programme, we managed to agree on two sets of milestones and right now we are in a first programme review and it’s primarily up to the Greek authorities regarding how quickly they are ready to move with all the issues we have been discussing. The achievement of fiscal targets, the pension reform, the privatisation fund, the public administration reform and so on.
Euronews: Let’s speak a little bit about the pension reform which is on the table right now and it’s a very difficult topic especially for the Greek government. We heard from many EU officials that this is a serious plan and a very ambitious plan by the Greek government. But there is a but; what does this but include?
Valdis Dombrovskis: “Indeed it’s quite a comprehensive proposal aimed at simplifying and unifying the Greek pension system but now during the programme review, we are looking at all those different elements. We’re now at the level of a technical consultation to see whether this plan ensures long term sustainability of the pension system in Greece and a number of other parameters.
Euronews: Do you think that the Greek government will need to go on with further cuts on pensions?
Valdis Dombrovskis: “Well, this is I would say a subject of separate debate, basically the question on how the Greek government will propose to ensure its fiscal targets for 2016, 2017, 2018. We know that the preference of the Greek government as regards social system is for example to raise social security contributions. On this we have also certain discussions whether raising the labour taxation is most growth friendly because from the point of view of the EU Commission, it’s not the most growth enhancing measure.
We are not saying strictly no way to discuss these measures but we are also willing to see what are the possible alternatives.”
Euronews: There was a wide debate about the IMF’s participation in the programme. As we know, the Greek government didn’t want it to participate in this third programme but finally accepted it. Do you agree with that? With the participation of the IMF in the programme? And why?
Valdis Dombrovskis: “Actually IMF participation in the third programme was foreseen already when we were drafting the programme. The programme was drafted also with the view of potential IMF financial contribution in mind. And this working assumption is what the EU Commission is working on now.
Euronews: When do you think that the first review will be concluded? Because there are a lot of statements lately. Within weeks? Within months?
Valdis Dombrovskis: “From the European Commission’s point of view we are willing to move forward fast and conclude the review as soon as possible. But of course we cannot move faster than the Greek authorities. So, what matters for us is really implementation of the agreement, so practical progress in implementation. So, this is ahead of the deadlines.
Euronews: Mr Regling has said that Greece will sooner or later face some liquidity issues. Especially if the first review is not concluded before February, what kind of problems could this create?
Valdis Dombrovskis: “Well of course if the implementation of the first review is seriously delayed, and we are talking delays for months not weeks, then at a certain stage it may be a question whether the Greek government has enough financial means to cover its current expenditure or new tranches of the programme are needed. And of course next tranches of the programme are linked with the first programme review.”
Euronews: Let’s go now to the debt issue. When do you see these debt relief talks opening?
Valdis Dombrovskis: “Well, Eurogroup conclusions are quiet clear that we can return to the issue of debt conditions after successful completion of the first review.”
Euronews: So, you think debt relief talks will open immediately after the conclusion of the first review.
Valdis Dombrovskis: “Well, that’s the way Eurogroup conclusions foresee it. Of course at the end of the day, it’s for creditors, for other Euro area countries to decide what is acceptable and what is not and what is the best way forward.”
Euronews: Do you think that Greek debt is sustainable?
Valdis Dombrovskis: “It’s probably not so much a short term issue because Greek debt is currently benefiting from very favourable conditions, very low interest rates, very high maturities and a grace period for the most principle interest so currently Greece is now paying less on its debt servicing than some other countries like Italy or Portugal. But of course in the longer term, knowing the very high level of Greek public debt about 180% of GDP, of course we will need to return to this matter.
Euronews: Could you say that this programme and this memorandum of understanding is the last one for Greece if of course fully implemented?
Valdis Dombrovskis: If fully implemented and this means really implemented not just voted, then it can certainly be the last programme. Indeed we already saw Greece last year returning to economic growth and delivering on its fiscal targets ensuring quite good job creation even tapping financial markets, sorry not last year, in year 2014. Developments last year unfortunately derailed Greece from this trajectory and if we were expecting still at the beginning of last year we were expecting something like 2,5% growth for Greece last year, now the estimates show there is hardly any growth at all. So, the political developments have had a quite heavy impact on the Greek economy.”
Euronews: Would you ask for additional measures?
Valdis Dombrovskis: “If the programme is fully on track of course there can be some technical adjustments here and there but there is no need to fundamentally review the memorandum.”
Euronews: Do you think the Grexit is not any more on the table?
Valdis Dombrovskis: “Certainly I would hope not. The European Commission had always worked with one scenario in mind that Greece stays in eurozone and implements necessary reforms.”
Euronews: The risk is there or not?
Valdis Dombrovskis: “Well, I would hope that not.”