Recap is key to next disbursements

Banking reforms that are necessary for the sector’s recapitalization are key to the disbursement of the first couple of bailout subtranches, say sources in Brussels, as the Euro Working Group is set to convene on Friday to draft the list of prior actions required from Athens.

Now that there is no pressing need for Athens to pay any dues this fall, the creditors are using the urgent need for the bank recap to pressure Greece to promote reforms.

A European official explained to journalists on Thursday in Brussels that although the recap process is not connected with the first tranche, it would be wise for the Greek side to complete all the prior actions related to the credit sector in time for the second subtranche of 1 billion euros. That will be the final disbursement from the package of 26 billion approved in August for payment to Athens as part of the third bailout of 86.6 billion.

This is set to follow the implementation of the prior actions for the first subtranche of 2 billion euros – while the prior actions for the second will likely be more painful. “Unless those banking prior actions are implemented, there can be no disbursement for the recapitalization of banks, a European official told Kathimerini.

In practice, the eurozone is leaning on Athens to complete its reform list or face the risk of a bank bail-in from January, which would mean a hiarcut on deposits of 100,000 euros and over.

The list of prior actions to be approved on Friday by the EWG will be very long, containing just under 50 measures, says a European official who has seen it. Some of those measures are due by October 15 while others should have been implemented by September 15. “Now, due to the delay from the elections, all measures must be passed by mid-October,” he said.

Discussion on Greece will continue on Monday at the formal Eurogroup meeting, where Finance Minister Euclid Tsakalotos will present the strategies of the newly formed Greek government.