There’s been an uproar in Greece over labour reforms requested of the country by international troika lenders as part of a package of spending cuts in order to secure more bailout aid.The FT’s Peter Spiegel reports this morning based on a copy of a draft memorandum obtained by the newspaper that one part of the plan is particularly controversial – a proposal to delegate more control of implementation of the measures to the European Commission’s Task Force for Greece, led by a German named Horst Reichenbach.
The document presenting the plan reads, “The trust account adopted at the Eurogroup Feb. 20 is strengthened to ensure that programme funds are used for debt service only.”
In other words, the troika wants to make sure that all of the additional bailout money going to Greece is only being used to repay the troika its previous bailout loans. And the troika wants to facilitate the payment itself.
Here is Spiegel’s description of the provisions:
Most intriguingly, however, it significantly ramps up an idea first broached in February: strengthening an escrow account to be used to service Greece’s outstanding debt. In February, that was termed a “segregated account”; in the new German proposal, it becomes a “trust account” run by “international management”, possibly the European Central Bank.
Under the new German plan, bailout aid would go directly into this account instead of to the Greek government, essentially stripping Athens of budgetary control over its own funding. But the German proposal goes even further, suggesting that when Greece finally reaches primary budget surplus (taking in more money than it spends, not counting interest payments on sovereign debt), a chunk of that surplus should automatically go into the account, too.
The FT also posted the full document on their website, a brief one-page executive summary with bullet points outlining the proposal.
Here are the key bullets, from the document:
- Externally managed trust account: The trust account adopted at the Eurogroup of Feb. 20th is strengthened to ensure that programme funds are used for debt service only, secured by setting up an international management (by the ECB for instance). As agreed in February, debt is serviced directly from this trust account. EFSF and IMF disburse after implementation of the agreed structural and fiscal reforms directly to the trust account and the Greek contribution to debt service defined in the MoU would also be paid into the trust account.
- Earmarking of revenues: A dedicated receipt (such as part of VAT income) in the volume of the requested GRC primary budget surplus could be transferred monthly to the trust account (as earmarking of revenue secure the delivery of the primary surplus and therefore the GRC contribution to the debt service. A GRC non-achievement of the required primary surplus would be balanced by a reduction in primary spending or increase of primary income. Should further budget gaps occur during the term of the programme GRC would fill the gap by its own means.
A “senior European official involved in the negotiations” told the FT, “It’s a tough proposal, but it is realistic.”
The FT also just posted two longer draft memorandums obtained by the paper that go into much more detail about the Greek bailout. Read more at the FT >
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