EU-Greece talks on debt, bailout fail to bridge gaps http://www.marketwatch.com/story/eu-greece-talks-on-debt-bailout-fail-to-bridge-gap-2015-06-14?mod=MethodeStories&link=sfmw via https://lumi.do/
The managing director of the European Stability Mechanism, Klaus Regling is referring to the continuation of the Cyprus program until the end, ie until March 2016. Mr Regling, while talkin exclusively to the Cypriot newspaper Politis and the finance editor, Yiannis Seitanidis, indicates that both the ESM and the troika have not been officially informed of the government’s intention to proceed to an early termination of the MoU. He argues that Cyprus has made significant progress in the program and to the adjustment of the economy towards a new economic model, but there are still several things to be done. He identifies the ESM loan facility “as a reliable safety net” and encourages the country to move in a rapid continuation of the program, which lasts, as pointed out, until March 2016.
Concerning the last developments in the Greek program, Klaus Regling noted that the new arrangement for Greece -by providing the EMS a preventive credit line- passes through the completion of the ongoing review of the Greek program. The head of the European Stability Mechanism points out that if there is no specific arrangement until the end of 2104, Greece must give back the unused amounts of the Greek Financial Stability Fund. Also, the €1.8 billion that the EFSF would still disburse to Greece if all the conditions are met, would be lost by the end of the year. Commenting on the positive scenario, of reaching an agreement, Mr Regling states, that ‘this would greatly improve the market sentiment towards Greek and pave the way for a stable and sustainable recovery’.
The full text of the interview to Yiannis Seitanidis, finance and economics editor in Politis.
Interview with Klaus Regling, Managing Director, ESM
Published in Politis (Cyprus), 9 November 2014
18 months have passed after March of 2013 and the ‘rough’ decisions implemented for the resolution of the Cypriot banking system. Today, both the country and the banking system have restored part of their lost confidence. The rating agencies have raised the outlook of the country and systemic banks have passed the stress tests. First of all, how has the ESM assessed the Cypriot economy today?
There has been very good progress. It has been one of most demanding programmes and, to date, Cyprus has delivered a lot. It’s true that it has been a difficult time, particularly for the population. Adjustments are painful – we know that – but the programme is being implemented and results are starting to show. You mentioned the ECB’s Asset Quality Review and the stress tests: the outcome was positive for Cyprus.
The current review has been on hold because we were waiting for all prior actions to be met. Up until now implementation has been timely and economic indicators are even slightly better than initially foreseen in the programme. All this is very positive for the Cypriot economy.
How has the decision of Supreme Court changed this “on hold” situation? Under which conditions will the review be closed and will the ESM be able to proceed with the disbursement?
The Eurogroup acknowledged there has been a very positive development in Cyprus due to this decision of the Court and in principle agrees to move forward with the payment of the €350 million tranche. But the disbursement can only be done after all uncertainty is removed, so the Eurogroup will monitor the legislative process to ensure that the prior actions continue to be fully met. Once this is the case and the ESM Board of Directors approves the disbursement, we can complete the payment before the end of the year.
The government has set the target for Cyprus to exit the MoU and the financial support of the Troika earlier than the fixed deadline, probably by mid-2015. Is this a realistic target?
I can’t comment on that because the Troika and ESM have not been officially informed about this. What I can say is that things are going into the right direction due to the rigorous programme implementation, the resilience and flexibility of the economy, and the efforts of people in both the private and public sectors. That said, the adjustment is by no means completed. The restructuring of the economy towards tourism and non-financial professional services with less dependence on banks will still take years to complete. Non-performing loans are very high at €29 billion as of end-August. Banks need to put in place effective management of non-performing loans, the sooner the better. Implementing the new foreclosure law and insolvency framework will be key for durable success in this area. The programme provides a critical framework to successfully come to this end. Moreover, markets can be volatile as we have seen in the last few weeks and the programme continues to serve Cyprus as a credible backstop. The ESM encourages a swift continuation of the implementation of the programme, which runs until March 2016.
The Ministry of Finance announced a debt level and a deficit ratio for 2014 and for the years to come, which is lower than predicted in the programme. Do you agree with the position of the Finance Minister, Harris Georgiades, that debt and deficit are in a sustainable level and there is no need for additional measures for the period after 2016?
The Troika will analyse the data in detail but it seems quite logical that the debt level looks better now than many thought a few months ago. There are several reasons for this. The program implementation is better. The fiscal consolidation is happening faster than expected. The primary surplus could actually be reached this year, if there are no unforeseen problems. Cyprus also benefited from the revision of the national accounts on all European countries, which in Cyprus resulted in a bigger improvement of the GDP than in other countries – that also helps to reduce the debt ratio. We also know now that the AQR and stress tests results did not reveal any capital shortfall.
All these things together clearly indicate that the fiscal situation is better and the debt level will be lower. To say the debt is already sustainable is a different judgment. It’s not only about one number, one ratio that would mark the difference between sustainable or not sustainable. The number of 120% is important, but there are countries with a debt higher than 120% which are sustainable and there are also other countries that had in the past a debt level much below of 120% and were not sustainable. So this depends very much on other economic factors. What is clear right now is that it is improving, more than we had expected and that is positive.
Using market terminology, ESM is the biggest “investor” in Cyprus. Are you satisfied by the investment in Cyprus? Does financial support help Cyprus to face the crisis?
It’s correct to say that the ESM is the biggest investor even if we are a different type of “investor”. The Cypriot government asked us in March 2013 to come to Cyprus because private investors were no longer willing to finance Cyprus on reasonable terms. Cyprus had effectively lost market access. The government made a request to the Eurogroup and the Troika made the assessment. The decision was for the ESM to get involved with a three-year programme, providing up to €9 billion. That’s a lot of money, almost 60% of GDP. It’s a very large programme on very special terms. I’m happy that the programme is working well for Cyprus. The reforms undertaken in the context of this programme are good for Cyprus.
The programme helps to reform the economy, to put it on a new sound footing. There is a new business model in the making where Cyprus will make good use of its natural and competitive advantages. It is the best way to return to sustainable growth and job creation. It is good for the country and also good for the euro area as a whole. The euro area wants its Member States to grow healthy and come to a point where additional exceptional financing is no longer necessary. That‘s the main goal.
We are also helping by providing financing on much more favourable terms than everybody else. The average maturity of our loans to Cyprus is 15 years and the interest rate that we charge reflects our very low funding cost, currently between 1 and 1.5%. That is an advantage for the Cypriot budget and for the Cypriot economy. We tried to quantify this advantage compared with market rates: it represents a saving of 1.5% of Cyprus GDP. That was a benefit last year and it will grow as we disburse more money. This is a real benefit, and this is a demonstration of the solidarity provided by euro area, as a whole, to Cyprus in exchange for the reforms and the adjustment.
The problem is that the real economy can’t feel this benefit. Is there any thought on how Europe could transfer this benefit from the fiscal area to real economy?
I know that the benefit is initially seen in the budget and is not felt by the population. The unemployment is high, real incomes are lower than pre-crisis levels. This was also the case in other programme countries – Greece, Portugal and Ireland. That is what people feel. But we must not forget that the country’s situation was unsustainable. Without our financing at very favourable lending terms, the problems would have been much worse. We know from experience of several countries around the world which have been through tough adjustment that after a while the benefits also start to be felt by the population. And if countries remain willing to reform, these benefits will last.
The ESM has a specific mandate as a crisis resolution mechanism. Do you see a future wider role for the ESM? For example to use part of ESM funds to in order to finance development projects?
There was some speculation recently about that. The new Commission President Jean-Claude Juncker is putting together an investment plan for Europe. He is looking at all possibilities and this option was considered but it would very difficult to use the ESM for that purpose. That is not part of our mandate. To change this mandate requires a change in the ESM Treaty, which is an international treaty – any change of this treaty requires ratification from 18 parliaments, from all euro area countries. Politically, that is very difficult. In any case we want to preserve the ESM’s main task as an emergency mechanism, because we know that one day there will be another crisis. We have to make sure that the ESM will be ready to help when that happens again.
The Banking Union is a reality and the ESM will soon have a new role, which is the direct recapitalisation of euro area banks. Do you believe that ESM is ready for this role?
At the ESM we are ready! The finance ministers of the Eurogroup asked us, a year ago, to prepare the ESM internally to be ready when the ECB assumes the role of single supervisor, which happened last week. We did our homework and we are ready to play this role. We still need the final legal decision by our Board of Governors – the finance ministers of the euro area. This process is going well and it is very likely to happen in the coming weeks. Internally we have concluded our preparations. If we are asked to take equity in a bank, we are prepared to do that. But after the results of the stress tests announced by ECB, I see no need to activate this instrument any time soon. In any case, we are the last line of defence and it’s good to have an instrument like this available. We are a crisis institution and should be prepared on short notice to do things that are not anticipated.
Does the Cyprus banking crisis create a new model for banking resolution, with bail-in as a part of it?
Cyprus was an exceptional case because of the magnitude of problems. The financing required was so large in terms of the country’s GDP that a particularly strong bail-in became inevitable. We have seen other recent cases of bail-ins, though on a smaller scale, in Spain and also recently in Portugal. The EU has now a new banking resolution scheme which requires a mandatory level of bail-in from 2016 onwards. In the future, no public money can be used in a bank without significant bail-in first.
The Euro zone finance ministers backed a precautionary credit line for Greece, after the country exits its bailout at the end of the year. Can you describe the next steps, in order ESM to activate this credit line?
There is a lot of support in the Eurogroup for a precautionary credit line and Eurogroup President Jeroen Dijsselbloem mentioned an ESM Enhanced Conditions Credit Line, an ECCL. But there is no agreement yet and certainly no formal requests were made to the ESM. There is an ongoing discussion and I cannot predict what will be the solution in the end. It depends on a number of issues. First, we hope that the current review will be concluded. Once that happens we will have better data. This also implies that Greece will receive the final disbursement from us and another disbursement from the IMF. Concluding the review is the one important issue which is still ongoing. We don’t know how the market situation will evolve, because there has been some volatility in recent weeks. The Eurogroup will receive all these elements and will then, hopefully, come to a common understanding with the Greek government.
So, the 8th December (Eurogroup) is not a final deadline?
The end of the year is important because legally the EFSF programme comes to an end. The IMF programme runs until spring 2016. If nothing happens – and that is not what I expect – then the money that we disbursed and is kept at the Hellenic Financial Stability Fund in the form of bonds will have to be returned. Also, the €1.8 billion that the EFSF would still disburse to Greece if all the conditions are met, would be lost by the end of the year. In that sense, yes, the end of the year is an important deadline. I hope that we will find a solution before that moment through a credible and prudent exit from the current programme into a follow up arrangement. This would greatly improve the market sentiment towards Greek and pave the way for a stable and sustainable recovery.
The Council prepared the European Council meeting of 23-24 October and held an exchange of views via video link with European Council President Herman Van Rompuy. The European Council will focus in particular on climate and energy, with the objective to reach an agreement on a new climate and energy policy framework for 2030. “The tone of the discussions was very encouraging. There is a real political will to find a solution and an agreement is possible”, said Sandro Gozi, State Secretary for European Affairs of Italy and President of the Council.
Follow-up to the June European Council
As a follow-up to the June European Council the Council took stock of the strategic agenda, focusing on the chapter on freedom, security and justice. Ministers discussed what can be done to improve or accelerate implementation. Particular attention was given to the issues of foreign fighters and EU passenger name records.
Strengthening interinstitutional annual and multiannual programming
The Council mandated the Presidency to contact the Commission on the 2015 Annual Work Programme and also to initiate contacts both with the Commission and the European Parliament with a view to establishing a consultation process for a new and efficient multiannual interinstitutional programming. “This is another priority of the Italian presidency, which will have a very concrete effect. It will make it easier and quicker for the EU to act and react”, State Secretary Sandro Gozi said at the press conference after the meeting.
European Union, 2014
The European elections in May were by far the most popular topic in the past few months with citizens writing to the European Parliament on a variety of issues, both during the pre- and post-election period and even on election day itself.
Other important issues for the period April to June 2014 included the on-going tension in Ukraine, preoccupation on human rights violations in various parts of the world and worries about animal welfare.
The Citizens’ Enquiries Unit (Ask EP) has published a quarterly review – Ask EP-Insight: April-June 2014 – focusing on the above mentioned topics and providing statistics for the second quarter of 2014.
The review’s main objective is to compile information on the issues covered in the questions sent by citizens to the European Parliament and to pass on citizens’ concerns to Members of the European Parliament and the institution as a whole.
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Today Jean-Claude Juncker was elected President of the European Commission by a strong majority of 422 votes in the European Parliament plenary session. After being proposed as candidate for Commission President by the European Council on 27 June 2014, Jean-Claude Juncker needed a majority of 376 votes in the European Parliament. Speaking ahead of the vote, he presented his political guidelines for the next European Commission as set out in a document entitled ‘A new start for Europe: My agenda for Jobs, Growth, Fairness and Democratic Change’(attached). These guidelines are the basis in which Jean-Claude Juncker was elected today. The following are the key quotes from Candidate for President of the European Commission Jean-Claude Juncker’s intervention:
- “I want to work for a Union that is committed to democracy and reform; that is not meddlesome but works for its citizens rather than against them. I want to work for a Union that delivers.”
- “My number one priority and the connecting thread running through each and every proposal will be getting Europe growing again and getting people back to work. To do this, within the first three months of my mandate, I will present a Jobs, Growth and Investment Package to generate an extra EUR 300 billion in investment over the next three years.”
- “SMEs are the backbone of our economies, creating 85% of new jobs in Europe – we can’t bury them in paperwork. We must unshackle them from burdensome regulation.”
- “It is in everyone’s interest that energy not be used as a political tool. It’s time Europe stood tall on its own feet, pooling our resources, combining infrastructures and uniting our negotiating power.”
- “The rescue of the euro was necessary but was weak on the social side. It is unacceptable to me that workers and retired people had to shoulder the burden of structural reform programmes, while ship owners and financial speculators became even richer. In the future we need a more democratically legitimate replacement for the Troika and thorough social impact assessments for any new support programmes.”
- “I want a reasonable and balanced trade agreement with the U.S. But I will not sacrifice Europe’s safety, health, social and data protection standards or our cultural diversity on the altar of free trade.”
- “We need more solidarity in our immigration policy. I will step up cooperation with third countries to deal with irregular migration more robustly and I will promote a new European policy on legal migration to put Europe on the map as a favourite destination for talent.”
- “My firm conviction is that we must move forward as a Union but not necessarily all at the same speed. For some, their final destination may already have been reached. I always was and very much remain ready to listen to and help find solutions for the concerns of each and every Member State.”
- “Gender balance is not a luxury but a political must and should be self-evident to all – particularly national leaders when it comes to proposing a candidate for Commissioner. This is in itself a test for the commitment of national governments to a new, more democratic approach in times of change.”
- “The Parliament’s campaign motto was ‘This time it’s different’ – help me make deliver on that promise today. Help me show the world that together we can give Europe its fresh start.“
The euro crisis started in Greece, and it won’t be over until doubts over Greece’s prospects are erased.
That this is still some way off was clear from Greece’s latest bailout review, the longest and most attritional yet. After seven months of haggling, the troika of official lenders—the European Commission, the European Central Bank and the International Monetary Fund—reached a deal last week that should be formalized by European Union finance ministers next month. It paves the way for the release of €8 billion ($11 billion) needed to repay maturing bonds.
Read here the full article from WSJ.
© Alexandr Blinov / Fotolia
Corruption in Russia is deeply entrenched and permeates all levels of Russian society. It causes significant financial loss to the Russian economy in terms of gross domestic product and considerably lowers the country’s attractiveness as a foreign direct investment destination. Despite a recent positive trend, as evidenced by various international indicators measuring the perception of corruption, Russia continues to lag far behind its G8 and G20 peers in the rankings.
The Russian leadership’s decision to step up its efforts to curb endemic corruption in Russia was prompted by its ambition to facilitate Russia’s further integration into the global economy, by obligations under international anti-corruption instruments and by commitments made within the G8 and G20.
In 2008, then-President Dmitri Medvedev signed an anti-corruption framework into law, and this has been repeatedly broadened and tightened. However, the fight against corruption has so far not made much headway. Law enforcement has remained ineffective and selective, allowing for impunity, notably…
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