Eurozone puts Greece’s efforts under microscope

Eurozone finance ministers will run the rule over Greece’s accounts again on Thursday but aren’t ready to sign off yet on a second, 130-billion-euro bailout program.

The Greek parliament approved an extension of pharmacy opening hours and cuts to spending on drugs in a late-night session on Wednesday, the final significant element in a package of three dozen «prior actions» euro zone countries had demanded before more aid is provided.

Ministers will gather in Brussels from 1300 GMT to assess Greece’s efforts. But they are not expected to fully sign off on the bailout program until later in March, once a restructuring of Greece’s private sector debt is complete, officials said.

“Today is just going to be a stock-taking exercise — looking at whether Greece has done enough and making sure the pieces are in place,» said a eurozone official involved in preparing documents for the meeting.

“So far the indications are that Greece has done enough. But it’s going to be a while before the ministers sign off and any money is disbursed.”

Finance ministers are scheduled to meet again on March 12, the first date that they could give final approval for the package, which ultimately aims to cut Greece’s debt to just over 120 percent of gross domestic product (GDP) by 2020, from 160 percent now.

That meeting is also expected to see a discussion on combining the eurozone’s crisis-fighting firewalls, the 250 billion euros (209 billion pounds) left in the temporary EFSF bailout fund and the 500 billion euro permanent ESM facility.

Jean-Claude Juncker, the chairman of eurozone finance ministers, said on Wednesday Greece would probably get its first payment from the second package by March 20 at the latest, as long as Athens meets all the conditions first.

A critical element of the package that has to be completed successfully before finance ministers can give their go-ahead is a bond swap in which private holders of Greek bonds swap their holdings for new bonds with a lower coupon, cutting around 100 billion euros from Athens’ debt pile.

The swap opened on February 24 and closes on March 8. Greece has said it is not obliged to carry out the swap unless it gets 90 percent participation. If participation is below 90 percent but above 75 percent, Greece would consult with public creditors.

If the rate was less than 75 percent and it did not receive required consents, it would not go through with the deal.

Greece has passed legislation introducing collective action clauses (CACs) that allow it to force all bondholders to proceed with the swap once it has secured a specified level of approval.

Based on the recently approved law, the exchange will go ahead once 50 percent of bondholders have responded to the offer and the clauses will be activated once a two-thirds majority of that quorum has voted in favor of the swap.

Provided the bond swap goes off smoothly, finance ministers should be free to give the go-ahead for the release of the funds in the aid package, whose precise figures are still being tinkered with but essentially add up to 130 billion euros.

Of that, 30 billion will be used to provide «sweeteners» to encourage the private sector to participate in the restructuring, up to 50 billion to recapitalize Greek banks, and 5.7 billion to pay off accrued interest on the bonds being exchanged.

The remainder will be used to finance Athens’ remaining bond obligations and to run general government operations.

That will bring assistance from the EU and IMF to a total of 240 billion euros of since April 2010, an amount that exceeds the total value of Greece’s economy. But the country will remain acutely vulnerable.

The biggest concern for finance ministers is that, as in the past, Greece will fall behind on meeting the program’s targets on structural and labor market reforms required to overhaul the economy and return it to competitiveness.

The first formal review of the second package will come three months after it is signed off, probably in June, although as part of the deal there will also be a dedicated group of inspectors on the ground in Athens monitoring the government’s every step in meeting its obligations.

Any indications of slippage and the IMF, or the European Commission, or both, could decide that Greece is beyond assistance and leave it up to Athens to decide if a deeper debt restructuring or full default is necessary. [Reuters]

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