ECONOMY

Eurozone decisions on direct bank recap and debt relief for Greece imminent, says Dijsellbloem

The moment of truth is approaching for Greece, Ireland, and other countries under fiscal adjustment programs. In an interview with Kathimerini, Jeroen Dijsselbloem, the president of the Eurogroup, says that “before the summer” we will know if these countries will be able to benefit from the “direct bank recapitalization” framework, in order to transfer from their books the public debt they have amassed through borrowing from the eurozone in order to keep their financial systems afloat. As regards Greece’s hopes for further debt relief, Dijsselbloem, who is also the Dutch finance minister, says that final decisions on what form this could take should be expected before the summer of 2014. The head of the Eurogroup appears satisfied with the implementation of the Greek Adjustment Program over the last few months and supports the Commission’s “differentiated” approach to fiscal consolidation. But he warns that Europe’s social model can only be sustained if our countries become more competitive and business friendly.

– Mr President, are you satisfied with the implementation of the Greek Adjustment Program since the Eurogroup decisions of last December? What are the main challenges ahead for Greece?

I am satisfied with the implementation of the MoU, on the basis of the troika reports. We are happy that the program makes progress and the disbursement of tranches from the bailout mechanism takes place as planned. One of the main challenges for the future of course is to bring down the debt, something that also depends on economic recovery. Another crucial point of interest for us is tax reform. It is a subject of the program, which still has to be implemented. Legislation has been put in place but of course the implementation of this legislation is crucial. Having a fair and effective tax system is important for any country, especially Greece.

– You said that one of the challenges is to bring down Greece’s debt. Following the Eurogroup decisions of last December, Greek politicians have openly stated that we should expect substantial debt relief once the country achieves a primary surplus – probably at the end of this year. Is this expectation realistic? And what kind of debt relief are we talking about? Is it feasible for eurozone parliaments to approve a deal that would incur losses to European taxpayers, for example?

Indeed, eurozone countries are prepared to do more if necessary to help Greece, on the condition that the program is fully implemented. This was part of the agreement in December. The moment when we are planning to examine if the program is delivering, both in terms of implementation and economic recovery, is next year, before the summer. Then we will review the program, and see whether it has been materialized and whether more needs to be done. There has been no decision on the specifics yet, so I cannot say whether there will be a write off of bilateral debts at this stage. The point is that within the course of 2014, we will know if the program delivers and if more is necessary to be done.

You see, the deal of last December was based on a number of assumptions, also regarding economic recovery. Whether these assumptions turn out as we expect, is, of course, something, which remains to be seen, during the course of 2014.

– The European Commission estimates that there will be a fiscal gap in the Greek adjustment program in 2015-16. But Greece is in its sixth consecutive year of recession and unemployment is at 27.2%. Do you think that more fiscal corrective measures are feasible without endangering social cohesion and political stability in the country?

In general, the European Commission allows for more differentiation between countries, looking for the specific social and economic situation in each member state. The Commission is already taking a more differentiated approach on fiscal measures, allowing for some countries to take more time in reducing their deficit. That should also apply for Greece.

I think that it’s crucial that all of us gradually and sensibly work towards a balanced budget, while at the same time implementing structural reforms. In the end, every country in the eurozone has to become more competitive, and increase our exports, we all have to allow for more business opportunities, and build a more business friendly environment. The answer to the crisis will not come from fiscal measures only. The answer is, and always was, a two-sided strategy: fiscal consolidation, but also proper economic reforms. We have done good work on both fronts, also in Greece, and the first signs of recovery can already be seen in your country.

– You said, Mr. President, that there are signs of recovery. But the people in Greece, in Cyprus, in southern Europe, especially the unemployed, cannot see it. How do you respond to those people who claim that the contractionary policies adopted by the Eurozone over the last years are the cause of their malaise?

We realize that in countries like Greece and Portugal, there has been a very serious and painful recession, which is very hard for their peoples. On the other hand, in order to make the right analysis of the causes of this recession, we have to look at the economic fundamentals of these countries, and take into account the strength of the Eurozone to support them. In many of these countries, the economy was overcreditized, and their competitiveness was deteriorating. Like I said, I think it’s wise that the Commission is allowing a more differentiated approach, giving a little more time for countries, whenever necessary, in order to reduce their deficit. But on the other hand, we have to make sure that, with the appropriate reforms, Greece once again becomes an attractive country to invest; that Greece becomes once again a competitive economy, which exports and makes money internationally.

Business opportunities will not come from public spending. Public spending can help to ease social pain. But in order to retain our social model, our way of life, we have to find a new business model, take advantage of export opportunities, not only to other countries inside the eurozone, but throughout the world. The general goal of our policies in the eurozone is to combine economic strength with the preservation of our social model.

– After the EU summit last June, Greece and other countries under adjustment programs, like Ireland, started hoping that the ESM would be able to recapitalize their banks directly. It’s not really clear yet what this means as each eurozone nation is giving its own interpretation of the decision. For example, Greece has borrowed 50 billion euros from the EFSF to recapitalize its banks. Will it ever be able to write this money off its public debt books?

We are working very hard on all the elements of the banking union. As you know, we have already agreed on the Single Supervisory Mechanism and the Capital Requirements Directive. Our current work focuses on two elements, one is the Resolution Directive, which gives us a harmonized framework to deal with banks in trouble, and the second one is direct bank recapitalization. Now whether direct recap will be accessible also to countries which are already under programs and have recapitalized their banks is yet to be decided. So I can’t answer that. We are trying to reach an agreement before the summer, but of course there are no guarantees. There are still elements to be discussed. I think it’s crucial to have the public backstop from the ESM in order to help countries facing problems. The conditions for that are now being discussed. Hopefully, we will have more clarity on that before the summer.