Next Greek aid deal will emerge in coming months, Moscovici says

Euro-area authorities will use the next four months to figure out how to help Greece after June, when its current bailout extension expires, European Union Economic Commissioner Pierre Moscovici said.

It’s not clear whether Greece will need a third bailout program, a credit line or some other arrangement, Moscovici said in an interview Friday with Bloomberg Television’s Francine Lacqua. He said the EU will work with Greece’s new government to make sure the voices of voters are heard.

Greece’s bailout program was extended until June this week, preventing the euro area’s most-indebted state from losing access to EU support at the end of February. Prime Minister Alexis Tsipras’s month-old anti-austerity government was forced to reconsider many of its election pledges in the face of national insolvency.

The country next faces an April deadline to convince euro- area and International Monetary Fund experts that it will meet its aid conditions as promised, a move that would allow it to tap its remaining bailout funds. The nation must navigate a cash-flow challenge next month and also faces hefty bills later this year when its program is due to expire.

Moscovici said the extra time allows the EU to prepare for what comes next. An Enhanced Conditions Credit Line from the euro area’s firewall fund is one option, he said, adding that authorities will decide what to do based on Greece’s needs.

Credit Lines

“In order to define the next step, the new arrangements — some call it a new program, some call it a new contract, there was also the question of an ECCL — we’ve got time to do that,” Moscovici said. “We know how to do that.”

Compared to previous periods of turmoil, “the euro area is stable and solid and has tools to resist any kind of shock,” Moscovici said.

The European Stability Mechanism offers credit lines as a backstop to market borrowing, which were designed to offer a helping hand to nations seeking to regain market access after the crisis. So far, none of the euro area’s five bailed-out nations have sought such assistance — and the conditions that might come with it. Ireland, Portugal and Spain opted to go it alone in financial markets after their aid programs ended.

Greece, which has so far received pledges of 240 billion euros ($270 billion) under two aid programs, might need a third program if it can’t tap market access as a credit line would require. Discussions with EU authorities will continue.

The Reform Path

“When you face elections and there is a democratic choice, this democratic choice must be heard and respected, so it’s normal that this government wants some changes,” Moscovici said.

Euro-area officials have tried to keep Greece on its reform path amid the new focus on social concerns. Commission Vice President Valdis Dombrovskis, whose portfolio includes the euro and monetary union, said in a Thursday night speech at the Centre for European Policy Studies that EU nations need to resist the populist urge to “portray Europe as the cause of all problems” rather than a force for good.

For Greece, “there were signs that the reform process was starting to pay off,” Dombrovskis said. “It would be a great shame and a really bad economic outcome for Greece and Europe if those huge efforts done to date would now go to waste.”

[Bloomberg]