Third Economic Adjustment Programme for Greece

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The Third Economic Adjustment Programme for Greece, usually referred to as the third bailout package or the third memorandum, is a memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.

A memorandum of understanding (MoU) is a type of agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used either in cases where parties do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentlemen's agreement.

Greek government-debt crisis economic crisis

The Greek government-debt crisis is the sovereign debt crisis faced by Greece in the aftermath of the financial crisis of 2007–08. Widely known in the country as The Crisis, it reached the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, as well as a small-scale humanitarian crisis. In all, the Greek economy suffered the longest recession of any advanced capitalist economy to date, overtaking the US Great Depression. As a result, the Greek political system has been upended, social exclusion increased, and hundreds of thousands of well-educated Greeks have left the country.

Contents

It was signed on 12 July 2015 by the Greek Government under prime minister Alexis Tsipras and it expired on 20 August 2018. [1] [2]

Government of Greece is the government of the Third Hellenic Republic, reformed to its present form in 1974.

Alexis Tsipras Greek politician

Alexis Tsipras is a Greek politician serving as Prime Minister of Greece since 2015.

History

2012

A Financial Times editorial on 22 February 2012 argued leaders had "proved themselves unable to settle on a solution that will not need to be revisited yet again", that at best the deal could only hope to remedy one part of the Greek disaster, namely the country's debilitated public finances, though it would not likely even do that. [3] The Eurozone's latest plan did, at least, evince consistency with the currency block's previous behaviour:

<i>Financial Times</i> Daily broadsheet business newspaper owned by Nikkei Inc. and based in London

The Financial Times (FT) is an English-language international daily newspaper owned by Nikkei Inc, headquartered in London, with a special emphasis on business and economic news.

Eurozone Area in which the euro is the official currency

The eurozone, officially called the euro area, is a monetary union of 19 of the 28 European Union (EU) member states which have adopted the euro (€) as their common currency and sole legal tender. The monetary authority of the eurozone is the Eurosystem. The other nine members of the European Union continue to use their own national currencies, although most of them are obliged to adopt the euro in the future.

from the start, its approach has been a halfway house of resisting a sovereign default but not doing enough to remove the risk altogether. The reason is obvious: core governments find it politically impossible to put up more money. So it is unfathomable that they did not demand more from private creditors. The debt restructuring leaves Greece and its helpers with €100bn of debt that could have been written down entirely and left funds to address future "accidents" without resorting to a third rescue. If there is another showdown with Greece it will have been caused by this. [3]

Household and corporate bank deposits (including repos) in Greece over time. DepositsAndReposOfPrivateSectorNon-MFIsInMFIsInGreeceByResidentsOfGreece.png
Household and corporate bank deposits (including repos) in Greece over time.

German minister of finance Wolfgang Schäuble and Eurogroup president Jean-Claude Juncker shared the scepticism and did not rule out a third bailout. [4] [5] According to a leaked official report from the European Commission, the ECB and the IMF, Greece may need another €50 billion ($66bn) from 2015 to 2020. [6]

Federal Ministry of Finance (Germany) Ministry of Finance of Germany

The Federal Ministry of Finance, abbreviated BMF, is the cabinet-level finance ministry of Germany, with its seat at the Detlev-Rohwedder-Haus in Berlin and a secondary office in Bonn. The current Federal Minister of Finance is Olaf Scholz (SPD).

Wolfgang Schäuble German politician (CDU), Minister of Finance of Germany

Wolfgang Schäuble is a German lawyer and politician of the Christian Democratic Union (CDU) party whose political career has spanned more than four decades. He is one of the most experienced and longest serving politicians in German history and since 2017 has been the President of the Bundestag.

Eurogroup informal body of ministers of the euro area member states

The Eurogroup is the recognised collective term for informal meetings of the finance ministers of the eurozone—those member states of the European Union (EU) which have adopted the euro as their official currency. The group has 19 members. It exercises political control over the currency and related aspects of the EU's monetary union such as the Stability and Growth Pact. The current President of the Eurogroup is Mário Centeno, the Minister of Finance of Portugal.

In mid-May 2012 the crisis and impossibility to form a new coalition government after elections led to strong speculation Greece would have to leave the Eurozone. The potential exit became known as "Grexit" and started to affect international market behaviour, as well as causing an accelerated decrease of bank deposits in Greek banks (commonly referred to as a bank-run).

Bank run economic problem

A bank run occurs when a large number of people withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system, a large number of customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent; they keep the cash or transfer it into other assets, such as government bonds, precious metals or gemstones. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it generates its own momentum: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may limit how much cash each customer may withdraw, suspend withdrawals altogether, or promptly acquire more cash from other banks or from the central bank, besides other measures.

In Greece, after all attempts to form a government failed following the parliamentary election in May 2012, a new second election in mid-June had to be announced. The new election led to the formation of a government of national salvation of conservative New Democracy with the social democrat PASOK and democratic socialist DIMAR, supporting continued adherence to the main principles outlined by the signed bailout plan. The new government however immediately asked its creditors to be granted two extra years, extending the deadline from 2015 to 2017 before being required to be self-financed, with minor budget deficits fully covered by extraordinary income from the privatisation program.

2013–2014

In August 2013, Schäuble expressed his expectations that "there will have to be another (bailout) program in Greece", a remark drawing heavy criticisms by other members of the German governing coalition. [7] However, soon thereafter the head of the European Stability Mechanism (ESM), Klaus Regling added to Schäuble's remarks, telling the German business daily Handelsblatt that Greece might need a third bailout package as soon as in 2014. [8]

In February 2014, the Troika was reported again to consider offering Greece a third bailout at €15–17bn, but now in conjunction with an additional debt relief for old Troika held debt, through expanding the maturity of the EFSF bonds from 30 to 50 years and lowering the interest rate 0.5% for the initial €80bn debt pile being owed to all other EU member states through the Greek Loan Facility. A decision about this potential third bailout loan, however awaits finalization of the third review of the second bailout programme, and will be conditional Greece comply with all terms specified in that programme - which include final fiscal data should verify that a primary surplus indeed was achieved in 2013. The potential third bailout loan was expected to be finally considered by European Union policy makers in May or June 2014. [9]

2015–2018

After several months of negotiation, on 12 July 2015, the Greek Prime Minister, Alexis Tsipras came to a bailout agreement with lenders for a new ESM program. Greece will get a loan of up to €86 billion, which shall be handed to Greece gradually from 2015 until June 2018. This includes a buffer of up to €25 billion for the banking sector in order to address potential bank recapitalisation and resolution costs. In return, Greece will have to streamline the VAT system and broaden the tax base to increase revenue, reform the pension system, safeguard the full legal independence of ELSTAT, automatically cut public spending to get primary surpluses, reform justice with a view to accelerate the judicial process and reduce costs, implement all OECD toolkit I recommendations, modernise labour market legislation, modernise and strengthen the Greek administration, revoke the laws passed by the Tsipras government counter to the February 20 agreement—except for the one concerning the "humanitarian crisis"— or identify clear compensatory equivalents for the vested rights that were subsequently created (e.g. for the rehiring of fired public servants), recapitalize the banks, and privatize 50 billion of state assets. [10] To help support growth and job creation in Greece up to 2020, the European Commission will help mobilise up to €35 billion to fund investment and economic activity, including in SMEs. The Investment Plan for Europe will also provide funding opportunities for Greece. [11]

On 14 August, after a rancorous all-night debate, the Hellenic Parliament backed the country's new bailout deal, although more than 40 MPs from Syriza voted against the deal and Tsipras had to rely on the support of the opposition: New Democracy, To Potami and PASOK. [12] Following the Parliament's decision, the Eurogroup welcomed the agreement between Greece and its lenders, and initiated the launching of the national procedures required for the approval of the new ESM program. These national procedured were concluded by 19 August, and Greece received the first disbursement of the initial tranche of up to €26bn. A first sub-tranche of €10bn will was made available immediately, but in a segregated account at the ESM, destined for bank recapitalisation and resolution purposes. [13]

See also

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First Economic Adjustment Programme for Greece

The First Economic Adjustment Programme for Greece, initially called the Economic Adjustment Programme for Greece and usually referred to as the first bailout package or the first memorandum, is a memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.

The Second Economic Adjustment Programme for Greece, usually referred to as the second bailout package or the second memorandum, is a memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.

This article details the fourteen austerity packages passed by the Government of Greece between 2010 and 2017. These austerity measures were a result of the Greek government-debt crisis and other economic factors. All of the legislation listed remains in force.

The Economic Adjustment Programme for Cyprus, usually referred to as the Bailout programme, is a Memorandum of understanding on financial assistance to the Republic of Cyprus in order to cope with the 2012–13 Cypriot financial crisis.

The Economic Adjustment Programme for Portugal, usually referred to as the Bailout programme, is a Memorandum of understanding on financial assistance to the Portuguese Republic in order to cope with the 2010–14 Portuguese financial crisis.

Euclid Tsakalotos Greek economist and politician

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2015 Greek bailout referendum

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References

  1. "'Μισή' έξοδος από μνημόνιο". Kathimerini .
  2. Greece emerges from eurozone bailout programme - BBC
  3. 1 2 Editorial (22 February 2012). "Greek rescue is still a halfway house". Financial Times. p. 12. Retrieved 28 March 2012.
  4. Scally, Derek (25 February 2012). "Schäuble concedes third Greek bailout on the cards". Irish Times. Retrieved 1 March 2012.
  5. Croft, Adrian (24 February 2012). "Eurogroup head cannot rule out third Greek bailout". Reuters. Retrieved 21 February 2012.
  6. Castle, Stephen (20 February 2012). "Europe Agrees on New Bailout to Help Greece Avoid Default". New York Times. Retrieved 1 March 2012.
  7. "Bitter Euro Truths: Crisis Could Damage Merkel's Campaign". Spiegel Online . 2013-08-27. Retrieved 2015-01-01.
  8. "Crisis Control: Stability Fund Chief Expects Third Greek Bailout". Spiegel Online . 2013-10-04. Retrieved 2015-01-01.
  9. "EU Said to Weigh Extending Greek Loans to 50 Years". Bloomberg. 5 February 2014. Retrieved 11 February 2014.
  10. "Euro Summit statement, 12 July 2015". European Council. Euro Summit. 12 July 2015. Retrieved 6 August 2015.
  11. "A New Start for Jobs and Growth in Greece: Commission Mobilises more than €35 billion from the EU Budget". europa.eu. European Commission. 15 July 2015. Retrieved 15 July 2015.
    * "Euro Summit statement, 12 July 2015". European Council. Euro Summit. 12 July 2015. Retrieved 6 August 2015.
  12. Hope, Kerin (14 August 2015). ""Greek Parliament Approves €85bn Bailout after Rancorous Debate"". Financial Times. Athens. Retrieved 6 August 2015.
  13. "Eurogroup Statement on the ESM Programme for Greece". European Council. Eurogroup. 14 August 2015. Retrieved 19 August 2015.
    * "Eurozone Ministers Approve First Rranche of Greek Bailout Funds". Business Insider. 19 August 2015. Retrieved 6 September 2015.