Hellenic Republic
The Prime Minister
15 March 2015
To the Chancellor of the Federal
Republic of Germany, Mrs Angela Merkel
Dear
Chancellor,
I am writing to you to express my deep
concern about developments since the 20th February 2015
Eurogroup agreement, which was preceded two days earlier by a letter from our Minister of Finance outlining a number of issues that the Eurogroup ought to resolve; issues which I consider to
be important, including the
need:
(a)
To agree the mutually acceptable financial
and administrative terms the implementation of which, in
collaboration with the institutions, will stabilise Greece's
fiscal position, attain appropriate primary fiscal
surpluses, guarantee debt stability and assist in the
attainment of fiscal targets for 2015 that take into
account the present economic situation.
(b)
To allow the European Central
Bank to re-introduce the waiver
in accordance with its procedures and regulations.
(c)
To commence work between
the technical teams on a possible new Contract for
Recovery and Development that the Greek authorities envisage between
Greece,
Europe and the International Monetary Fund, to
follow the current Agreement
(d)
To discuss means of enacting the November
2012 Eurogroup decision regarding possible further debt measures
and assistance for implementation after the completion of the extended Agreement
and as part of the follow-up Contract.
Based on the in-principle acceptance of this
letter and its content, the President of the Eurogroup
convened the 20th February meeting which reached a unanimous decision expressed in a communique. The
latter constitutes a new framework for the relationship
between Greece, its partners, and the institutions.
More precisely, the 20th February Eurogroup
agreement stipulated a number of points
outlining this new framework and process, including:
(a)
The Greek
authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday
February 23. The institutions will provide a
first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of
the review. This list will be further specified and
then agreed with the institutions by the end of April.
(b)
The Greek
authorities have expressed their strong commitment to a broader and deeper structural reform process aimed at
durably improving growth and employment
prospects, ensuring stability and resilience of the financial sector and enhancing social fairness. The authorities
commit to implementing long overdue reforms
to tackle corruption and tax evasion, and improving the efficiency of the public sector. In this
context, the Greek authorities undertake to make best
use of the continued provision of technical assistance.
(c)
We remain
committed to provide adequate support to Greece until it has regained full market access as long as it
honours its commitments within the agreed
framework.
Based on this
common ground, the Minister of Finance sent
to the President of the Eurogroup a letter, dated 23th February
2015, with the aforementioned "first list of reforms" [see (a) above] proposed by our government. On 24th
February 2015 the said "first
list" was accepted by the institutions as "sufficiently comprehensive
to be a valid starting point for a
successful conclusion of the review" by 20th
April 2015.
In order to expedite the process, the Ministry
of Finance sent a letter to the President of the Eurogroup on 5rd March 2015 urging that the process
of technical discussions on specifying further the "first list of
reforms" begin immediately. In the same
letter the Minister of Finance attached seven examples of how the reforms in
the "first list" could be developed and specified further.
Following a positive reply by the President of the
Eurogroup (dated 61h March
2015) and the subsequent Eurogroup meeting of
9th March 2015, the first round of discussions
of the Brussels Group (comprising
of the four institutions — EC-ECB-ESMIMF — plus the technical team of the
Greek government) took place, in Brussels, on Wednesday
11th March dealing with both political and technical
issues. At that meeting it was also
decided that technical teams of the institutions would travel to Athens on the following day for on-site
fact-finding to assist the Brussels Group negotiations.
In the context of the above, I feel it is
critical to alert you to a number of developments which are either
undermining the spirit of the agreements reached or making their fulfillment perilously difficult.
a) On 4th February 2015
the European Central Bank lifted the waiver for minimum credit rating requirements for marketable
instruments issued or guaranteed by the Hellenic
Republic, while declaring that the waiver would be restored when an agreement was reached at the level of the
Eurogroup. Moreover, even since the Greek banks
were referred to the Bank of Greece's ELA facility, the ECB has been raising the ELA's ceiling at shorter
intervals than normal and at rather small increments that incite speculation
and spread uncertainty vis-à-vis Greece's banking
system. Additionally, the ECB determined that Greek banks cannot hold more T-bills than they did on 18th February 2015,
thus restricting their participation
to well below the T-bill cap. (Please note that, in the summer of 2012, when a new Athens government was in a similar
situation to ours. ELA was being expanded
generously, the T-bill issuance cap was lifted to
allow the government to finance its debt
repayments to our creditors, and banks were not restricted to
any limit corresponding to a prior date's holdings. In that manner the government
of the time and the Eurogroup were granted sufficient 'space' to reach an
arrangement that allowed the Greek banks to move away from ELA and back to normal
ECB financing methods.)
b) Following past failures (of the previous government) to complete the
scheduled reviews, disbursements under the loan agreements with the ESM-EFSF were discontinued
(while those of the IMF were similarly delayed), yielding a substantial
financing gap in 2014 and 2015. This includes the profits from the ECB's
SMP-sourced bond redemptions, which the ECB distributes to member states on the
understanding that they be passed onto the Greek government.
Given that
Greece has no access to money markets, and also in view of the
'spikes' in our debt repayment obligations during the Spring and Summer of 2015
(primarily to the IMF), it ought to be clear that the ECB's special restrictions [see
(a) above] when combined with the disbursement delays [see (b) above] would make it
impossible for any government to service its debt obligations. Servicing these
repayments through internal resources alone would, indeed, lead to a sharp
deterioration in the already depressed Greek social economy — a prospect that I
will not countenance.
Meanwhile, I also regret to report that little progress has been made in the negotiations between the technical
teams in Brussels and in Athens. The reason for the extremely slow progress is that
the institutions' technical teams, as well as some of the actors
at a higher level, seem to show little regard for the 20th February Eurogroup
agreement and are, instead,
committed to proceeding along the lines of the Memorandum
of Understanding that pre-dates both the 20th February agreement and
25th January 2015 — the date on which the Greek people elected a new
government with a mandate to negotiating the new process established by the 20th February
Eurogroup agreement. It is difficult to believe that
our partners consider that a successful reform drive can be carried out under such
restrictive and pressing constraints, including the financial squeeze that my government
is currently labouring under .
The Greek government remains steadfast in its commitment to fulfill its
obligations
to its partners within the framework of the 18th February letter and 20th February
to its partners within the framework of the 18th February letter and 20th February
Eurogroup decision. However, I am also obliged
to make clear to you that, in order to continue to fulfill our obligations, as we have done up till now, progress has to be made on a
number of fronts:
(a)
After the 20th February Eurogroup agreement and the approval of the extension of the
MFAFA by member states, and given that the technical discussions with the institutions are under way, the ECB should return
the terms of finance of the Greek
banks to their pre-4th February 2015
state.
(b)
The process by which the reforms proposed by the Greek government, and their evaluation, must be immediately clarified so as to make a
successful conclusion of the review by end of April
2015, as well as to specify the recommencement of disbursements with th e
progress of the negotiations.
(c)
The process must be specified (as well as the
participants and the timetable) by which further arrangements (which my government would like to take the form of a 'Contract for Greece's Recovery and Development' — including provisions on Greece's public debt in the spirit of the November 2012 Eurogroup agreement) will be agreed to before the end of June 2015.
Alex Tsipras
In other words, "sister can you spare a dime"?
Or two?
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