Eurozone rescuing Greece: Conditionality is a big stick

Solidarity towards Greece and eurozone self-interest both motivated the efforts to get the team back into the play. The stakes were unprecedented on both sides, and they still are.

The euro area countries and notably the International Monetary Fund (IMF) did not sign blank cheques, but agreed to give highly conditional support. As the EU Council explained:

The very severe deterioration of the financial situation of the Greek Government has led euro area Member States to decide to provide stability support to Greece, with a view to safeguarding the financial stability of the euro area as a whole, in conjunction with multilateral assistance provided by the International Monetary Fund. Support provided by the euro area Member States will take the form of a pooling of bilateral loans, coordinated by the Commission. The lenders have decided that their support shall be conditional on Greece respecting this Decision. In particular, Greece is expected to carry out the measures specified in this Decision in accordance with the calendar set out herein.

I suggest that you read for yourself the Council Decision on fiscal surveillance and deficit reduction in Greece was published today in the Official Journal of the European Union (OJEU):



COUNCIL DECISION of 10 May 2010 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit; OJEU 11.6.2010 L 145/6.



Conditionality expressis verbis


The four substantive Articles of the Council Decision spell out the narrow path the Greek government has to take to put an end to the excessive deficit situation.

It details the measures Greece has to take, as well as the deadlines, in express terms.

As I said, I suggest that you read the detailed Decision.

I am just going to offer you a few disjointed extracts to give you an inkling of the tenor:

Greece shall put an end to the present excessive deficit situation as rapidly as possible and, at the latest, by the deadline of 2014.

The adjustment path towards the correction of the excessive deficit shall aim to achieve a general government deficit not exceeding EUR ...

Greece shall adopt the following measures before the end of June 2010: ...

Greece shall adopt the following measures by the end of September 2010:

Greece shall adopt the following measures by the end of December 2010: …

Greece shall adopt the following measures by the end of March 2011: ...

Greece shall adopt the following measures by the end of June 2011: …

Greece shall adopt the following measures by the end of September 2011: ...

Greece shall adopt the following measures by the end of December 2011: …

Greece shall fully cooperate with the Commission and transmit without delay, upon a reasoned request from the latter, any data or document required in order to monitor compliance with this Decision.

Greece shall submit to the Council and the Commission a report outlining the policy measures taken to comply with this Decision on a quarterly basis.

Sovereignty?


The Greek government and the parliament have voluntarily undertaken their part of the rescue bargain, but it is a daunting challenge.

What is left of ‘sovereignty’, when a country has lost its capacity to cope on its own?

Conditionality is a big stick.




Ralf Grahn

Eurozone team rescue Greece: Legal base

Today the Council Decision on fiscal surveillance and deficit reduction in Greece was published in the Official Journal of the European Union (OJEU):



COUNCIL DECISION of 10 May 2010 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit; OJEU 11.6.2010 L 145/6.



Legal base

The decision is based on Article 126(9) of the Treaty on the Functioning of the European Union (TFEU)(in the latest updated version of the treaties, OJEU 30.3.2010 C 83/101):

Article 126(9) TFEU

9. If a Member State persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the Member State to take, within a specified time limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.

In such a case, the Council may request the Member State concerned to submit reports in accordance with a specific timetable in order to examine the adjustment efforts of that Member State.

The decision is also based on Article 136 TFEU concerning measures specific to those member states whose currency is the euro. The Council Decision states:

Article 136(1)(a) TFEU foresees the possibility of adopting measures specific to the Member States whose currency is the euro with a view to strengthening the coordination and surveillance of their budgetary discipline.

Reasons

The Council presents the history of the excessive deficit procedure (EDP) concerning Greece. It then states that the economic situation has worsened:

However, the abrupt change in the economic scenario means that those plans can no longer be considered valid, requiring even more drastic action in the course of the current year. At the same time, the depth of the contraction in the economy that can now be expected makes the achievement of the initial deficit reduction path unfeasible. Unexpected adverse economic events with major unfavourable consequences for government finances can be considered to have occurred in Greece and revised recommendations pursuant to Article 136 and Article 126(9) TFEU are therefore justified.

Beggars are not choosers

The government deficit of 13.6 % of GDP in 2009 and the debt level of 115.1 % (both subject to potential moves upward after statistical investigations) can be described with one word: catastrophic.


Since the FIFI World Cup kicks off today, we could use a football parable:

If one of our players commits a serious individual mistake in front of our goal, and the other team scores, our team is down by one goal (and on its way to lose the match).

The euro area is a team. The eurozone expects every team member to do its duty.




Ralf Grahn

Where democracy and transparency in eurozone rescue?

The eurozone rescue operations between the Euro Group governments have left EU citizens with little more than a number of communiqés.



Only the € 60 billion European financial stabilisation mechanism (Council Regulation 407/2010; misnamed in Euro Group press release yesterday) was published in the Official Journal of the European Union (OJEU).



Weeks later a proposal was formally and belatedly published as a preparatory document on Eur-Lex: COM(2010) 2010 final (the number is odd, when the latest document, published 7 June, is numbered 293). Sadly it only contained the Regulation text, so it did not add to our knowledge. Naturally, this proposal did not serve the purpose of public debate before decisions are taken.

On the other hand, in this saga Council Regulation 407/2010 is the shining star from the viewpoint of transparency. It was, after all, agreed between all the EU member states in the Council and published in the OJEU.



Intergovernmental deals

There were no preceding (Commission) proposals on Eur-Lex under preparatory documents of the € 80 billion Greek rescue package and no publication of the decisions in the Official Journal of the European Union (OJEU).

No proposals open to public debate were published on the EU’s legal portal Eur-Lex with regard to the new € 440 billion European Financial Stability Facility. Will this press release after the fact be what the public is deemed worthy of at EU level with regard to the EFSF?



Terms of reference of the Eurogroup: European Financial Stability Facility (Luxembourg, 7 June 2010)

To recapitulate...

Three decisions have now put € 580 billion of EU citizens’ money on the line (almost the size of the GDP of the Netherlands), plus half as much promised by the IMF.

Monumental decisions are taken between governments of the Euro Group, without opportunity for open and public debate in advance on known proposals. Intergovernmental deals seem to fall outside the publishing criteria of Eur-Lex.

Using the same logic, perhaps we should wonder why the treaties are published officially. They, too, are agreed intergovernmentally, not by the EU institutions.

The euro rescue discussions have taken place in the Euro Group, an unofficial group of finance ministers.

There is now talk about economic governance or government. Some of the ideas floated suggest that a new unofficial group of eurozone heads of state or government would replace the already unofficial Euro Group or be superimposed on it.

Openness, transparency and democratic accountability would suffer even more.

Public debate, publicity, opportunities for public debate, responsibility and parliamentary scrutiny at European (eurozone) level would be short-circuited more than ever. Scrutiny by dispersed national parliaments, each with regard to their own government’s role, is no substitute when the decisions de facto concern the whole eurozone and every inhabitant.

Government by press release is not the way forward in a Europe all too willing to teach the world the virtues of democracy, the rule of law, human rights and fundamental freedoms.




Ralf Grahn

Eurozone crisis: Roundup of preparatory documents on Eur-Lex

In Eurozone crisis: Roundup of official information (OJEU), 19 May 2010, we searched for the eurozone rescue decisions published in the Official Journal of the European Union (OJEU) by today.

Only the €60 billion European financial stabilisation mechanism and two supporting decisions by the European Central Bank had been published in OJEU, leaving question marks with regard to openness (transparency), closeness, democracy and the rule of law.

Do we fare any better if we look for the proposals where they should be, on Eur-Lex under preparatory acts?

Here are the proposals and preparatory documents we hope to find in full, or at least properly documented: the €110 billion (including IMF) support package for Greece, Greek austerity and reform measures, the €60 billion European financial stabilisation mechanism, the €440 billion Special Purpose Vehicle, additional IMF participation, national commitments, fiscal and economic reform promises from Spain and Portugal, measures towards greater fiscal prudence, proposals for stricter economic governance and additional ECB decisions.



Eur-Lex roundup



How is this roller coaster month of May reflected by preparatory documents on Eur-Lex?


COM documents


No relevant COM documents were found.



SEC documents


Among SEC documents we find the following, published in 21 languages (but not in English), so I arbitrarily chose to link to the French version:



Recommandation en vue d'une DÉCISION DU CONSEIL adressée à la Grèce en vue de renforcer et d'approfondir la surveillance budgétaire et mettant la Grèce en demeure de prendre des mesures pour procéder à la réduction du déficit jugée nécessaire pour remédier à la situation de déficit excessif ; Bruxelles, le 4.5.2010 ; SEC(2010) 560 final (12 pages)



The proposed Council Decision, based on Article 126(9) TFEU and Article 136 TFEU, sets out revised measures for eurozone member Greece to take for deficit reduction, because the economic growth prospects have worsened and the chances to deficit reduction targets have deteriorated. The attainment date is postponed by two years, to 2014, but the requirements for Greek measures to restore credibility are tightened. The proposal details a real austerity package.



Convergence report


A number of documents relevant to the larger picture of budgetary discipline have been published. The following covers progress towards euro introduction:






Commission staff working document (Brussels, 12.5.2010; SEC(2010) 598 final; 197 pages) accompanying the Commission’s Convergence Report 2010; COM(2010) 238 final [the latter not posted among COM documents on Eur-Lex]


The periodic Convergence Report is based on Article 140(1) TFEU, and it concerns the progress made by member states with a derogation towards achieving economic and monetary union (EMU).


Denmark and the United Kingdom have opted out and 16 EU member states have introduced the euro currency, so the 2010 convergence assessment covers Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden.



Budget discipline


Part of the same larger framework, but regarding individual member states are a number of Commission reports:



Luxembourg Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010; SEC(2010) 588 final (9 pages)


The Commission deals with the application of the Stability and Growth Pact in the current crisis situation, the first step in the excessive deficit procedure with regard to Luxembourg, when the government deficit exceeds the reference value of 3 per cent.

***




Cyprus Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010; SEC(2010) 590 final






Denmark Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010;
SEC(2010) 585 final






Finland Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010;
SEC(2010) 589 final







Bulgaria Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010;
SEC(2010) 587 final




Recommendation for a COUNCIL OPINION on the updated stability programme of Cyprus, 2009-2013; Brussels, 12.5.2010; SEC(2010) 595 final



Summing up

No COM documents directly relevant to the eurozone rescue were posted on Eur-Lex under preparatory documents.

The only SEC document published on Eur-Lex under preparatory documents, which was directly linked to the salvage operation was the proposal for Greek budgetary measures.

The publishing efforts have been unsystematic and people who want to access documents are in for a search from dispersed sources.

The staff working paper accompanying the Convergence Report 2010 (itself absent) and the reports on individual countries form part of the larger task of restoring fiscal probity and budget discipline in the European Union.

How about transparency, closeness, democracy and the rule of law?




Ralf Grahn

Christmas statement to Latvia

The Nordic Finance Ministers have issued a Christmas statement to the beleaguered Latvian Government, promising supplementary credits. Here is the 23 December 2008 joint statement:

Joint statement from the Ministers of Finance in Denmark, Finland, Norway and Sweden regarding lending to Latvia

The IMF Executive Board has today approved a financial package for Latvia. The package is linked to an extraordinary strong economic reform programme that includes a fiscal consolidation of around 7 percent of GDP already in 2009. The Nordic countries stand ready to provide credits of up to €1.8 billion contingent on the successful implementation of the reform programme.

Like in the case of Iceland, the Nordic countries - Denmark, Finland, Norway and Sweden - have worked closely together and jointly decided to contribute to the financing of the IMF-programme. The total amount the Nordic countries are prepared to lend equals the support provided for Iceland 1.8 billion euro.

The programme is very ambitious and shows that Latvia is firmly committed to stick to the present currency peg. It will be particularly important to rebalance the current account and improve the economy’s external competitiveness through the full implementation of the fiscal plans and ensuring that wages develop in line with the requirements that come with the fixed exchange rate. The authorities also need to work hard with structural reforms aiming at developing a competitive export sector and improving the institutional framework of the economy.

With the implementation of the programme Latvia should be in a position to weather the present turbulence and move towards a path of sustainable growth and more balanced macroeconomic developments.

Anders Borg, Kristin Halvorsen, Jyrki Katainen and Lars Løkke Rasmussen

***

Despite the IMF rescue package and coordinated help from the Nordic countries, Latvia faces a rough 2009 and beyond.


Ralf Grahn