Heading from one review to the next

Greece will find itself in the rather odd position on Monday of still trying to complete its third review but also launching the fourth inspection by the institutions. It is a fitting moment in the sense that it marks the gradual transition from securing funding from its lenders to stay afloat to being able to propel itself into the future.

Before the discussion moves to post-program era, there is one more loose end to tie up as far as the third review is concerned. At last Monday’s Eurogroup, the creditors decided that the next loan tranche of 5.7 billion euros could not be disbursed because two out of the third review’s 110 prior actions had not been checked off.

The first concerned the redevelopment of the former airport at Elliniko in southern Athens. The project needed the approval of the Council of State to move ahead. It emerged on Thursday that Greece’s highest administrative court had deemed the presidential decree regarding the development plan to be constitutional.

This leaves just one prior action to be resolved, which is the proper functioning of the electronic auction system first launched last November. As of last week, all property auctions in Greece are held via the online platform. However, last Monday eurozone finance ministers did not feel confident that enough auctions are being held or that their geographical coverage is broad enough.

“We understand that the Greek government took the necessary actions to make it work,” said Eurogroup president Mario Centeno after last week’s meeting. “Now we have to evaluate how this is implemented throughout Greece.”

It appears there has been an increase in the number of properties being registered online to go under the hammer. The number of properties uploaded onto the electronic system was closing in on 2,000 at the end of last week, according to reports. A total of 260 property auctions are slated to take place on Wednesday and a total of 639 auctions have already been scheduled for March. The framework agreed with the creditors foresees 1,000 foreclosures a month initially, rising to 2,000 a month during the final quarter of the year.

The institutions will have the opportunity to witness first-hand whether the system is working as they will be in Athens for discussions on the fourth review. The talks between the lenders and Greek government officials are due to begin on Monday. The fourth review contains 88 prior actions that include the introduction of e-auctions for debts to the state from May 1, the divestment of lignite units followed by the sale of 17 percent of the Public Power Corporation, the recalculation of pensions for the cuts that are due to be implemented in 2019, and the phasing out of the EKAS benefit for low-income pensioners.

The discussion about these prior actions will take place in parallel to talks about the post-program environment for Greece. Last Monday, European Economic Affairs Commissioner Pierre Moscovici said the framework would consist of “three dimensions” aimed at making Greece a “normal” member of the eurozone: A Greek-owned growth strategy, a debt relief package (including the mechanism linking growth to debt relief proposed by France) and post-program surveillance.

He confirmed that the aim is to have all three elements settled by the June 21 Eurogroup in Luxembourg, which would mean that all the preparations will have to be in place for the meeting of eurozone finance ministers due to take place on May 24.

With regard to the first element, Greece’s own growth plan or “holistic strategy” as it has been described, Finance Minister Euclid Tsakalotos repeated a pledge last week to have it ready in early April, just after Greek Orthodox Easter.

Technocrats have also begun working on a debt relief formula, with particular emphasis on the French top-up scheme, which will kick in if Greek growth is lower than its projections. “I hear the discussions are progressing well but it is still preliminary,” said Centeno last Monday. “We aim to have sufficient progress for a first discussion on this mechanism in March or April.”

The post-program surveillance is perhaps the vaguest of the three elements at this stage. “Nothing should look like a fourth program,” said Moscovici. “The program surveillance must be adapted so we can be alongside Greece, but that Greece is a sovereign country.”

What this will mean in effect remains to be seen. However, during a recent visit to Athens, Moscovici indicated that the main vehicle the institutions will use to keep Greece in check after August is the European Semester, whose focus is on maintaining sound public finances, preventing macroeconomic imbalances and implementing structural reforms.

There were suggestions last week that some of the creditors may be trying to push Athens towards accepting a precautionary credit line to support its bailout exit as it would provide markets with greater certainty, shielding Greece from rising bond yields, and come with conditionality that would allow future governments to be monitored closely by the lenders. The speculation was triggered by comments Centeno made in the European Parliament, but which may have been misinterpreted.

“The precise arrangement at the time of the exit is a decision for the Greek government,” he told the Committee on Economic and Monetary Affairs last Wednesday. “I would consider that all possible mechanisms and instruments that are available should be evaluated and should be used in this process.”

However, Centeno went on to highlight that market access and the creation of a cash buffer are the two key conditions for Greece being able to exit the program. Also, the question posed to him was not just about a precautionary credit line but also about whether the European Central Bank should include Greek bonds in its quantitative easing scheme after the MoU exit.

“We need to use all instruments available,” Centeno responded when he was pressed on the issue of QE for Greece.

Whatever the case, though, Tsakalotos ruled out again the possibility of any kind of credit line. He told MEPs that such a move would create uncertainty about Greece’s future as there would be no decisive exit from the program. He added that the government has already started building up a cash buffer, making a credit line redundant, and that the element which will really instill confidence in the country’s prospects is an agreement on debt relief.

Greece and its creditors will clearly have much to discuss when they sit around the table again from Monday.