Tuesday, February 21, 2012

Final terms of the Greek bailout

Below is the partial text of the statement issued by the Eurogroup concerning the conditions required of Greece in order to obtain its second bailout. As you will see, this document is unprecedented in the modern era in its degree of intrusiveness. It reads very much like a document handed by a victorious government to a defeated one, providing “terms” for surrender.

In essence, Greece has been placed in receivership, with the Eurogroup Task Force acting as receiver. Greece is requited to change laws, to admit “observers”, to submit its finances to external inspection, to give priority to debt servicing over all other uses of revenue, and to change its constitution in order to enshrine this priority in perpetuity.

It is hoped that such Draconian terms will be sufficient to persuade the parliaments of the Northern League (Germany, Finland, Netherlands) to pass the bailout legislation.

This document will only have curiosity value a year from now, when it has long been forgotten by everyone involved. But it is worth reading now, nonetheless.

Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013, carry out fully the privatisation plans and implement the bold structural reform agenda, in both the labour market and product and service markets, in order to promote competitiveness, employment and sustainable growth.

To this end, we deem essential a further strengthening of Greece's institutional capacity. We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.

Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.

The Eurogroup also welcomes Greece's intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece's debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter's debt service directly to a segregated account of Greece's paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

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