February The sixth austerity package was approved by the Hellenic Parliament in February 2012.
Negotiations In October 2011, Papandreou got parliamentary backing for further austerity measures. These new measures would allow Greece to get an extra instalment of international loans, forming a
second bailout package that would prevent a sovereign default and would allow the partial write-off of Greek debt, the so-called
private sector involvement (PSI). As a result of this backing, the EU granted a
quid pro quo of further austerity for a €100bn loan and a 50% debt reduction through PSI. Within a week, Papandreou, backed unanimously by his cabinet, announced a referendum on the deal, sending shockwaves through financial markets. German chancellor
Angela Merkel and French prime minister
Nicolas Sarkozy then issued an ultimatum declaring that, unless the referendum approved the measures, they would withhold an overdue €6bn loan payment to Athens, money that Greece needed by mid-December. Papandreou cancelled the referendum the next day after the opposition New Democracy Party, agreed to back the agreement. The person chosen for this task was non-MP
technocrat Lucas Papademos, former Governor of the
Bank of Greece and former Vice-President of the
European Central Bank; his appointment was criticised by left-wing parties and branded "unconstitutional". By contrast, three separate polls taken when Papademos assumed office revealed that around 75% of Greeks thought that temporary, emergency technocratic rule was "positive". It thus demanded that Greek party-political leaders sign legally binding letters to this effect, as well as to any additional measures that might be required in future as part of the second rescue-package. Finalising the deal on the 50% PSI debt write-off, required by the Troika as a condition for extending more aid, proved difficult in early 2012, given objections primarily from hedge funds. In an interview with
The New York Times, Papademos said that if his country did not receive unanimous agreement from its bondholders to voluntarily write down €100bn of Greek's €340bn debt, he would consider legislating to force bondholder losses, and that if things went well, Greeks could expect "an end to austerity" in 2013. Others believed that even the proposed 50% would not be enough to prevent a sovereign default.
Approval In February, facing
sovereign default, Greece needed more funds from the IMF and EU by 20 March, and was negotiating over a €130 billion lending package. On 10 February, the Greek cabinet approved the draft bill of a new austerity plan, which was calculated to improve the 2012 budget deficit with €3.3 billion (and a further €10 billion improvement scheduled for 2013 and 2014). The austerity plan includes: • 22% cut in minimum wage from €750 to €585 per month • Permanently cancel holiday wage bonuses (one extra month's pay each year) • 150,000 jobs cut from state sector by 2015, including 15,000 by the end of 2012 • Pension cuts worth €300 million in 2012 • Changes to laws to make it easier to lay off workers • Health and defence spending cuts • Industry sectors are given the right to negotiate lower wages depending on economic development • Opening up closed professions to allow for more competition, particularly in the health, tourism, and real estate sectors • Privatisations worth €15 billion by 2015, including Greek gas companies
DEPA and
DESFA. In the medium term, the goal remains at €50 billion. The latest round of austerity measures meant that Greece would face at least another year of recession before the economy started to grow again. Foreign observers were shocked by both the cold-heartedness of German negotiators and a perceived lack of integrity from Greece not honoring its commitments. Showing disagreement, transport minister
Makis Voridis from the
Popular Orthodox Rally party, along with five deputy ministers from various ministries, resigned. On 11 February, Papademos warned of "social explosion and chaos" if the parliament did not approve the deal the next day. Speaking to members of Parliament before their vote, Papademos stated that if the majority voted against the austerity measures, the government would not be able to pay employee salaries. On 13 February, the Greek Parliament subsequently approved the measures 199 to 74. During the parliamentary debate, massive protests were witnessed in Athens that left stores looted and burned and more than 120 injured. The riot was one of the worst since 2010. Despite its position as one of the ruling parties, the
Popular Orthodox Rally voted against the plan and withdrew from the government. Forty-three
MPs from the other two ruling parties (social democratic
PASOK and conservative
New Democracy) also voted against the plan and were immediately expelled from their parties. This reduced the combined power of these two parties from 236 to 193 seats, still enough for a majority of the 300-seat parliament. The vote was a major precondition for the EU and IMF to jointly release the funds, which are supposed to cover all financial needs in 2012 and 2013, with the hope that Greece can start lending again at the private capital markets in 2014. The determination of the Greek leaders to implement the new austerity package was however doubted. For example,
Antonis Samaras (leader of New Democracy) talked about renegotiating the deal, despite voting for the package. Because of this uncertainty, Eurozone finance ministers demanded that Greek main politicians sign a written assurance for their continued support to implement the austerity package, both before and after any elections. After passing the package on 13 February, four other hurdles remained for Greece to receive the new €130 billion bailout loan: • €325 million out of the total €3.3 billion austerity package for 2012 needed to be specified in the form of some exact "structural expenditure reductions", to be outlined and passed by a separate bill. • Written commitments from the main party leaders had to be filed to guarantee their continued support for the program, both before and after elections in April. • The debt restructure agreement, with a debt write-off worth €107 billion, needed to be implemented by a bond swap in early March, involving at least 95% of the private creditors. Under the terms, all the holders (banks, pension funds, insurers and others) of €206 billion in government bonds, would have to write down the face value of their holdings by 53.5%, by swapping bonds they held for longer-dated securities that pay a lower coupon. When calculated for the bonds with the longest maturity, the 53.5% reduction of face value would be equal to a 74% loss on the net present value of the debt. The agreement included a
collective action clause to force recalcitrant holders to participate. • A debt sustainability report by the Troika, based upon full implementation of the package and the debt agreement, needed to show a sustainable outlook for the Greek economy, reducing the debt relative to GDP to 120% in 2020.
October The seventh austerity package was approved by the Hellenic Parliament in October 2012.
Specific measures Some of the main elements are: • Bank recapitalisation • Tax reform • Labor market reform • Pension reform • The "Midterm fiscal plan 2013–16". The fiscal plan is an extension of the
initial bailout package, as it contain the framework for €5.3bn of additional measures (primarily tax hikes) to be implemented in 2015–16 along with the €13.5bn of measures for 2013–14. The extension (and accompanying agreement) were to be covered in more details by a new
bailout program in November 2012
History The package and reforms were outlined in the
second bailout agreement (March 2012). Initially, the package only dealt with those €13.5bn of measures (comprising €10bn spending cuts and €3.5bn tax hikes) for implementation in fiscal year 2013 and 2014. According to the implementation plan of the
second bailout agreement, the measures were expected to have been passed by
the Greek parliament in June 2012. The passage of the austerity package was delayed due to political turmoil. Two parliamentary elections were held, on 6 May and 17 June. Subsequent political calls prompted by a worsened recession asked for a two-year extension of the bailout programme, and for the politicians to settle the exact content of the measures. This was finalised on 29 October.
Negotiations As of 1 October, the Troika and the government were negotiating a €13.5bn austerity package for 2013–14, of which €10bn was to be implemented as spending cuts and €3.5bn as tax hikes. The government's proposal was that the financial budget for 2013 should implement the first €7.3bn of spending cuts and €0.5bn of tax hikes; with the remaining cuts scheduled for 2014. According to earlier Troika statements, the report would depend on the level of ambition and seriousness of the government's measures and on the progress on structural reforms and privatisation. The Troika on 2 October explained to the government that the points agreed to in the
March 2012 bailout agreement had to be effected before the €31.5bn capital payment: • €13.5 billion austerity package for 2013 and 2014, of which the Troika needed the government to deliver a specification of how they would achieve €1.5 billion spending cuts for 2013 (mostly related to cuts for the health sector, defence, reform of local authorities and public sector) and €2 billion measures scheduled for 2014 (mostly related to tax hikes). • Four structural reforms: • Liberalization of professions previously legally protected against competition • Deregulation of goods, services and energy markets • Creation of a new body to manage state procurements • Merging health insurance providers with the National Organization for Healthcare Provision (EOPYY) The Troika reportedly pushed for lower minimum wages and a 30% reduction of the compensation paid to dismissed employees. This proposal was rejected by the government. Another point of disagreement was whether 20,000 civil servants should be simply laid off (recommended by the Troika) or placed in a so-called "labor reserve scheme" at a reduced wage for two years before having their status re-evaluated (preferred by the government). According to
Kathemerinis source, the Troika had also indicated they were willing to accept the large
tranche of unspecified savings from structural reforms, if the government were ready to accept the frontload of the austerity package. IMF at the same time also called for a decision to liberalise the fuel sector, as their review report of the sector had concluded that Greeks on a yearly basis currently pay about $1bn more for fuel than they should. If the Eurogroup approved the content of the negotiated deal, it would be submitted for a final approval by the European heads of state at the EU summit on 18 October. As the exact content of the package needed to be revealed before the Troika can reach its conclusion about the sustainability of the Greek economy, it was expected this important report appear in the first half of November. On 17 October, the Troika released the following statement: :"The [Greek] authorities and [Troika] staff teams agreed on most of the core measures needed to restore the momentum of reform and pave the way for the completion of the review. Discussions on remaining issues would continue from respective headquarters and through technical representatives in the field with a view to reaching full staff level agreement over the coming days. Furthermore, financing issues would be discussed between the official lenders and Greece." Responding statements from the government indicated that an agreement about core elements had been agreed. Disagreement remained about labor market reforms, with the government still resisting direct layoffs or wage/pension cuts for public workers. Another outstanding point was that the government requested that the Troika finance a two-year delay of the fiscal targets in the bailout plan, to avoid the need for the government to pass an additional austerity package (in addition to the €13.5bn) to reach the initial fiscal targets. It was likewise hoped that these additional disagreements could be settled during additional talks with headquarters. At the EU summit on 19 October, it was announced the Eurogroup would arrange a conference call on 29 October to approve the final version of the austerity package, and provided this package subsequently was passed by the Greek parliament before 11 November, the Eurogroup was ready to make the decision at their ordinary meeting at 12 November to accept the release of the bailout funds.
16 October to 12 November • 16 Oct: Details for the bank recapitalisation were presented. The size of the recapitalisation was a potential €48bn, of which the first €18bn had already injected into the four biggest banks in the first half of 2012. The remaining recapitalisation was to be performed in three stages. At first the
Hellenic Financial Stability Fund (HFSF) would immediately inject capital to the banks to reach the required 9% capital ratio. At the second stage HFSF would provide financial tools until the end of January, and at the third stage the permanent capital increases should be covered by the private sector by the end of April 2013. Banks with remaining capital inadequacies would find a solution before mid-June 2013. The 3 biggest systemic banks would get the remaining capital amounts covered by HFSF through the issue of common shares (where HFSF in return would pay the banks with EFSF bonds), while smaller banks would have to be either liquidated by HFSF or bought by other banks. The plan is for private shareholders to retain administrative control of the systemic banks, so during the next five years they would have the right at any time to buy back the shares from HFSF. Apparently the Troika have dropped their previous requirement for the capital ratios to be further increased to 10% by the end of June 2013. • 19 Oct: A new reform of the tax system was presented, with a flat rate 28% income tax for self-employed and enterprises, and a general 50% reduction in tax exemptions on property transactions, inheritances and parental donations. Starting from January 2013, all property owners would on a yearly basis have to pay the same single rate for property tax. The tax-free bonus for families with children would be abolished, and a ceiling would be introduced on exempted expenditures related to healthcare. Another major change is that all social benefits (previously exempted) would be taxed as salary revenues. For corporations the biggest change was that the tax-free threshold of €5,000 per year would be abolished. All in all, the tax reform is expected to increase the government revenues by €3bn per year. • 29 Oct: The Eurogroup working group held an extraordinary meeting to discuss the current debt sustainability in Greece, and potential solutions to improve it. It was decided to reject the call from the Democratic Left to attempt a further revision of the already negotiated labor market reform. • 29 Oct: The government signed a new act that would assign
Greek Finance Ministry inspectors to monitor public expenditures for all those ministries and state bodies that do not comply with fiscal targets. The act also introduced an automatic mechanism giving the Finance Ministry power to immediately stop excessive expenditures. • 30 Oct: Prime minister
Antonis Samaras announced the Troika negotiations about the fiscal plan 2013–16 and labor market reform had been successfully concluded, and was a subject for parliamentary approval the following week. The PASOK/New Democracy majority agreed to support the entire package. Democratic Left stated "We are not in agreement with the conclusion of the negotiations", and as a last resort would now attempt to "force the situation" by asking the eurozone leaders to overrule the Troika negotiators resistance to change essential parts of the labor market reform. • 30 Oct: The country's privatisation agency revised the previous revenue target from €19bn by the end of 2015, to only €11bn by the end of 2016. The revenues collected from the privatisation program was in March 2012 forecasted not only to reduce the debt by €50bn, but also to generate an extra €60bn investments from the buyers, resulting in €3bn extra annual tax revenues for the government and 50,000 jobs; raising annual GDP growth by 1%. During the first 2.5 years after the May 2010 bailout, Greece had managed to sell public assets only worth €1.6bn. • 31 Oct: A reform package to enable privatisations was narrowly passed. 30 MPs from PASOK and Democratic Left abstained. • 31 Oct: A reform proposal to merge the social security funds of journalists, civil engineers, lawyers and others with the National Organization for Healthcare Provision (EOPYY), did not pass. • 31 Oct: The Eurogroup noted significant progress had been made paving the way for a full staff level agreement between the Troika and the government. If certain actions were conducted by the Greek authorities, the Eurogroup would seek to finalize the Greek programme on 12 November. • 31 Oct: The government presented a worsened forecast for 2012 and 2013, with real GDP expected to decline by 6.5% and 4.5% respectively, while the
debt-to-GDP ratio expected to reach 175.6% in 2012 and 189.1% in 2013. • 31 Oct: The government submitted the
Midterm fiscal plan for 2013–16 to the parliament, with €18.8bn of austerity measures scheduled ov erfour years. The package is frontloaded, meaning the measures would be implemented with: €9.3bn (2013), €4.1bn (2014), €1.9bn (2015), €2.7bn (2016). The measures include an increase in retirement age from 65 to 67 years, salary and pension cuts, and another round of tax increases. A vote for the plan is scheduled on 7 November, while the parliament would vote on the related
2013 Fiscal budget on 11 November. • 01 Nov: Export sector reform with a bucket of 19 measures, was presented by the government. It seeks to reduce administration costs for the export sector with 20% by 2015 (where a reduction of export fees is one of the direct saving measures), and halving the time to process exports through simplified approval procedures (i.e. by introducing the "Single Window" to operate as a one-stop-shop service). The reform was expected to boost the value of exported goods 10%, while also creating 80,000 jobs and resulting in an extra GDP growth of 1.7%. • 06 Nov: The two biggest labour unions started a 48-hour-long general strike in protest of the austerity measures and the labor market reform. • 07 Nov: The Greek parliament voted for the labor market reform, the proposal for merging various social security funds with the National Organization for Healthcare Provision (EOPYY) and the
Midterm fiscal plan 2013–16. New Democracy and PASOK had to dismiss respectively 1 MP and 6 MPs (of which 4 had abstained, 1 opted to be absent, and 2 voted against), reducing the combined majority of the two parties to 153. As 14 out of 16 MPs from Democratic Left abstained, they would continue to be part of the coalition and they pledged to support and vote for the austerity-packed 2013 Fiscal budget on 11 November. • 08 Nov: The Eurogroup held an extraordinary meeting. Final decisions were postponed to 12 November. • 11 Nov: The Greek parliament was scheduled to vote for the 2013 Fiscal budget. Two of the previously excluded MPs from New Democracy and PASOK unexpectedly decided to back the bill, while 1 MP from Democratic Left was absent, the bill by the end of the day passed. One New Democracy MP voted against the amendment concerning the extra labour market measures and was excelled from the party, lowering its number of MPs to 125, and reducing the combined majority with PASOK to 151 MPs. • 11 Nov: A draft version of the almost completed and long-awaited Troika surveillance report appeared that outlined the results for the Greek economy, reforms, privatisation programme and debt sustainability. Among other things it claimed that the two-year extension of the bailout programme would cost €32.6bn of extra loans from the Troika (€15bn in 2013–14 and €17.6bn in 2015–16). • 12 Nov: Eurogroup and IMF agreed to consider a revised bailout plan. The Eurogroup proposed prolonged maturities and lower interest rates on existing loans and/or a debt-buy-back of the remaining privately held government bonds, then listed with a face value of €63bn. The debt-buy-back would in practical terms mean that the Troika would buy all the remaining privately held bonds at a price close to the market price; an operation that would need the acceptance of private investors to sell at the offered price. If all private investors accepted a debt-buy-back at 30% of face value, it would require the Troika to issue €18.9bn of new debt to finance the transaction, resulting in a net debt reduction for Greece at €44.1bn (equal to a debt-to-GDP ratio decline of 23%). The crucial passage of the Labor market reform, Midterm fiscal plan 2013–16 and Fiscal budget 2013 resulted in the exclusion of several MPs from the three coalition parties. New Democracy lost 4 of 125, PASOK lost 7 of 26 and Democratic Left lost 3 of 14. The combined majority was reduced to 165/300 and that the majority for the two most reform-friendly parties was only 151 MPs.
Parliament approval On 7 November, amidst protests of tens of thousands of people, the Greek parliament narrowly approved another austerity package worth €13.5 billion. Without the vote, the Troika warned, the next instalment of €31.5 billion in financial aid would not be granted. Samaras told MPs that this package was "definitely the last", though some commentators immediately disagreed. ==2013==