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The Ministries of Finance and Defence are still far from reaching an agreement with the supervisory Troika regarding the future of the two state military companies, namely Hellenic Defence Systems (EAC) and the company for the production of military and civilian special purpose machinery, ELBO.

Instead of taking part in the videoconference with representatives of the lenders, which had been scheduled for yesterday but has been postponed for the second time and will take place next week, Minister of Finance Yiannis Stournaras met again with Deputy Minister of Defence Fofi Genimata.

The postponing of the videoconference has exacerbated the relations between the Greek government and the Troika which expected to receive the final proposal of the Ministry of Finance regarding the military enterprises and the state mining enterprise LARKO. This proposal is one of the main conditions for the granting of the next tranche of 1 billion euro.

Additional data

The meeting discussed again the details of the Greek proposal for the recovery of the two military enterprises. In particular, regarding Hellenic Defence Systems, Fofi Genimata had provided additional information with respect to orders totalling 250 million euro, which the enterprise must fulfil soon after it is allowed to continue functioning.

It is believed that the arguments for the viability of the Greek proposal for liquidating the enterprise while it is functioning will be strengthened in this way. Let us recall that, since the start of the negotiations on the state military enterprises, the Ministries of Finance and Defence have proposed the separation of the military and civilian sectors in Hellenic Defence Systems.

After a significant reduction in the staff of 850 workers, the sector, which is engaged in the production of ammunition, could continue meeting the long-term and permanent needs of the Greek armed forces whereas the recovery activities could take place within the work process.

This can be done according to an EU regulation, which stipulates that the enterprises serving the long-term and permanent needs of the armed forces of member states shall be treated as bodies of the central government and, therefore, the case shall not be considered as an illegal state aid.

The viability of the enterprise could be ensured by the implementation of the orders from Greece and abroad, which have already been secured. At the same time, by turning it into an entirely military company, Hellenic Defence Systems will no longer be obliged to conceal the illegal state aid detected by the European Commission.

The civilian sector of the enterprise, which accounts for 15% of the illegal state aid, could be sold to private entities after improving the functioning of the market.

The Troika, however, insists that this will really solve the problem of the use of illegal state aid but will not resolve the real problem, namely, the huge deficit of the enterprise which burdens the state budget every year. The Troika’s representatives also oppose the 140 million euro which is the cost of cuts, according to the Greek state.

Regarding the company for the production of military and civilian special purpose machinery, ELBO, the Troika is more explicit and insists on terminating its activities and on transferring its almost 350 employees to other state companies. The proposal submitted by Minister of Defence Dimitris Avramopoulous himself about a month ago provides for turning the enterprise in Thessaloniki into a military factory so as to solve the problem in a manner as favourable as in the case with Hellenic Defence Systems.

A firm stance against the company for the production of military and civilian special purpose machinery ELBO

The Troika does not accept the possibility of the company for the production of military and civilian special purpose machinery ELBO being included in the favourable regulation of military enterprises, if it is not first convinced by concrete data that over 50% of the enterprise is focused on supplies and machines for the Greek army.

This is difficult to materialise bearing in mind the fact that ELBO assembles the city buses and trams.

"For us there is no other scenario than that of maintaining the activity of the military sector of the enterprise", states a senior official at the Ministry of Defence who took part in the meeting between the Minister of Finance and the Deputy Minister of Defence.

When asked about the long duration of the negotiations and the continuous postponement of the videoconference with the Troika, the same source said that Greece is trying to strengthen its arguments. "We want to find a solution as quickly as possible", he said, adding, however, that there is no deadline for resolving the problems of military enterprises.

Delay in the tranche of 1 billion euro

A senior government official admits that the delay in agreeing the required measures, as of September, delays the approval of the tranche of 1 billion euro which should have been paid by the end of this month. In addition to military enterprises, however, the package of structural changes remains open in connection with the changes in the public sector too.

The negotiations between the Ministry of Administrative Reform and representatives of the Troika last month did not get further than the Greek request for a two-month extension of the deadline for the preparation of detailed lists of 12,500 civil servants from the second wave of mobility, which must be submitted to the Troika by the end of the year.

In connection with the request, Minister Kyriakos Mitsotakis argues that it will take time to revise the structures of the ministries, so that those who would be involved in the so-called labour reserve would come directly from the reduction of staff. The Troika, in turn, has requested to immediately receive a list of the names of the employees of the second wave of mobility, stating that it will otherwise require more cuts in the public sector. In this situation, the Ministry of Administrative Reform will have to draw up a comprehensive proposal for the next stage of negotiations which is to take place at the end of the month.

It should be noted that the preconditions for the granting of the tranche of 1 billion euro include the vote in parliament of the already drafted new lawyer’s code and the publication of the relevant law in the Official Gazette.

"Considerable improvement of the situation"

There are no data showing that 2014 will require new fiscal measures since, according to the available information, the primary surplus may be larger than anticipated. At the same time, no one is able to forecast now whether 2015 and 2016 would require new measures but the available data show that the opposite is more likely to happen.
 
This is the assessment of the Economic Analysis Department of Alpha Bank, which criticizes the Troika on the grounds that, by putting such issues to the fore, it is shaking economic, investment and consumer confidence, which seems to have been slowly recovering since May 2013.

The weekly economic report of the bank states that, between May and October 2013, important positive developments in key sectors of the economy have occurred in Greece, indicating a significant improvement of its current economic state. The result of them is a significant slowdown in the decline in GDP in 2013, below 3.7%, and a steady improvement of the prospects for Greece’s economic recovery from 2014 onwards. Another effect of the improved situation is the improvement of the fiscal adjustment in 2013, the achievement of impressive progress in all areas of structural reforms and the significant improvement in international competitiveness.

Investors worldwide have approved these positive signs and have invested significant capital in Greece in recent months. The report also stresses that the smooth recapitalization of the banks in the private sector and the subsequent positive development of the market of Greek government bonds and of the Greek stock exchange have been the result of the investment of significant capital too.