Greece's Creditors Are Said to Plan Post-Bailout Commitments

(Bloomberg) -- Greece’s post-bailout future may not feel much different from the present, as it will include binding targets, compliance reviews, and even disbursements, according to an internal memo circulated among its creditors.

The document foresees quarterly reviews of the country’s finances by auditors representing the European Stability Mechanism, the European Commission, the European Central Bank and the International Monetary Fund. Any “room for Greece to shape its own policies,” will be constrained by “continued engagement with European institutions” to ensure that structural overhauls adopted under its bailouts will be safeguarded, according to the document obtained by Bloomberg.

Europe’s most indebted state will also be required to maintain a surplus before interest payments that’s equal to 3.5 percent of its economic output and not accumulate arrears to vendors. Its “measurable” and “clearly defined” commitments range from “achieving a share of centralized procurement in total hospital expenditure of 30%” to “45% of cadastral mapping” by mid-2020.

After eight years and three bailout programs, Greece wants to regain its financial sovereignty in August on the back of a rebounding economy and easier repayment terms on some bailout loans extended by the euro area. With creditors wary of the Mediterranean country returning to its old habits that triggered its economic implosion, at least some of these concessions will be contingent on not straying from the path of fiscal prudence.

The carrot offered for this “enhanced surveillance” will be annual disbursements from the profits that euro-area central banks made on their Greek bonds portfolio and the elimination of an interest-rate penalty charged on some bailout loans, according to the memo. “Disbursements could take place in equal annual tranches of approximately 1.2 billion euros in June each year, or could be split in two semi-annual sub-tranches in June and December.”

A dedicated section in the long list of commitments that Greece will be asked to undertake for after its bailout includes sales and leases of state assets, from the Athens International Airport and the country’s gas-grid operator Desfa by the end of this year, to Hellenic Petroleum by mid-2019, and Egnatia Motorway and the regional ports of Alexandroupoli and Kavala by end-2019.

In addition to the carrot of disbursements, creditors also count on the stick of rising bond yields, which would endanger the access of the sovereign and private companies to debt markets should Greece not comply with its commitments. Enhanced surveillance “can thus engender credibility towards partners (both domestic and external) and markets alike,” according to the document.

Yields on Greek bonds dropped with the 10-year note falling as much as 1.01 percent at 11.57 am Athens time on Wednesday to almost a month low, while the Athens Stock Exchange General Index rose as much as 1.1 percent in intraday trading amid optimism that euro-area finance ministers will reach a deal on Greece on Thursday.

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