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The third financial aid package includes seven measures

24 August 2013 / 14:08:24  GRReporter
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New measures for social security, health care, the public sector and faster privatization are included in the third package, which is already an open secret between Athens and Brussels. It may be formally refuted, but both the Ministry of Finance and Brussels are preparing it not only financially but also in terms of new commitments that Greece will be forced to take.

The existence of a third package (albeit smaller compared to the previous two) was confirmed by German Finance Minister Wolfgang Schaeuble, who responded to insistent questions of German media and talked about a new small loan to Greece. In this way, Germany will keep the IMF in the programme, which, according to today's agenda, will continue to fund Greece until 2017.

The new measures

Greece has a commitment to show a surplus this year, which in 2016 and 2017 has to reach 4.5% of GDP, and in 2018 - 4.3% of GDP, and will have to stay within 4% of GDP by 2020 . This implies higher financial obligations that are directly related to the Greek debt. Senior officials from Brussels indicated that regardless of how it is formed the new programme cannot contain permanent cuts in wages and pensions. A thing like that in a country with a drop for a seventh consecutive year would endanger the implementation of the programme, and as a consequence - the money that countries of the Eurozone have given as a loan to Greece.

Nevertheless, more safeguards for compliance with the programme will be required.

One way is to further automate the terms that have been agreed but not enforced until now. Automatic stabilizers will need to be reviewed in the event that insurance funds continue to worsen their economic situation, and sectors that would automatically slash funds need to be chosen in order to compensate for the difference.

Bonuses and supplementary pensions will surely be cut in the next package. A subject of negotiations will be the automatic adjustment of pensions in case of financial changes. The measure has already been voted, but it will apply as of 2015. A new loan agreement can return the automatic calculation of pensions.

Healthcare and social security, despite continuous cuts, are considered by the Troika as "wasteful" and ineffectual in terms of achieving the objectives. Therefore, the integration of insurance funds needs to continue as well as cuts of "unnecessary" health services.

There should also be a return to private insurance through the establishment of private or professional funds through additional security in private insurance companies in order to mitigate obligations of insurance funds.

There is also a scope for improvements in the public sector (except insurance funds and public hospitals). Local Government is showing abnormalities which need to be corrected. Many public services that produce deficit will have to be merged, sold, or closed. Such an effort started in 2010, but it did not provide the expected results because of constant political crises.

The Troika has high expectations in terms of reducing the administrative burden on businesses. The cost of bureaucracy in Greece is believed to amount to 15 billion euro. The second phase of the restructuring of the public sector will be important in the next package of measures.

Privatization is considered by the Troika as another failure of the programme. In September, final decisions will be considered in order to ensure that the programmed passages will be implemented and public debt will be reduced. Delaying the implementation of automatic adjustment clauses in the event of deviation of incomes from state property for two consecutive quarters in 2013 will be implemented in the third programme. This could mean both outright sale of immovable property and liquidation of troubled state-owned companies such as Greek Defence Systems, the Greek Arms Company and the metallurgical Company LARKO.

14 billion euro

The plan, which is being drawn up in Brussels as the first phase includes a new loan of 14 billion euro, and an extension of the package for EU funding, which ends next July and will fill the financial gap of about 11 billion euro.

A reduction of lending rates

The new loan will be small and it is believed that it will be passed relatively easily in parliaments of Northern Member States, together with the argument of financial stabilization.

The second, longer-term measure is the implementation of 27 November’s decision of Eurogroup, according to which, if Greece show a surplus, interest on loans from the first and the second rescue package will be reduced. An extension of the loan from 30 or 50 years is also being discussed.

There are also discussions about the possibility not to include the deficit of development programmes that are financed by Structural Funds in the debt. This measure is believed to accelerate the efforts for balanced budgets. It is supported by European Commission President Jose Manuel Barroso, as well as his deputy, Olli Rehn.

Tags: package loan European Commission creditors Social Security privatization healthcare
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