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 additional €5.3bn of measures (primarily tax hikes) to be implement in 2015–16 along with the €13.5bn of measures for 2013–14. The extension (and framework agreement for that) will likely be covered in more details by a new third bailout program in November 2012, and could perhaps also be described as the seventh austerity package, as it will likely only be defined in full details around summer/autumn 2014 where the Greek parliament is required to pass it as final law.
The seventh austerity package and reforms framework were outlined already 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) accepted and signed by the Greek politicians for implementation in fiscal year 2013 and 2014. According to the plan for implementation 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 in Greece. Two national parliamentary elections were held, on 6 May and 17 Jun. Subsequent political call prompted by a worsened recession to ask for a 2-year extension of the bailout programme, along with the politicians conducting stubborn and slow negotiations to settle the exact content of the measures in the package, it was only finalised in all details at 29 October 2012.
As of 1 October 2012, the Troika and the Greek government were still in the process to negotiate and agree on a €13.5bn austerity package for 2013–14, of which €10bn should be implemented as spending cuts and €3.5bn as tax hikes. The Greek government's latest proposal for the Troika, 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 part of the austerity package scheduled for implementation in 2014. The official Troika report featuring a new status for the bailout plan and a sustainability analysis of the Greek economy, is expected to get published later in October 2012. According to earlier official Troika statements, the conclusion of the report will highly depend on the level of ambition and seriousness of the Greek government's measures agreed to in the "austerity package", and also depend on how much progress the government has delivered on implementation of the needed structural reforms and privatisation program.
According to sources involved in the negotiations, the Troika on 2 October had explained to the Greek government, that the following points (all agreed upon in the March 2012 bailout agreement) still had to be complied with, before the withheld €31.5bn capital payment (of which €23bn was earmarked to recapitalisation of banks) would be released:
The Greek parliament should pass the needed €13.5 billion austerity package for 2013 and 2014, of which the Troika still needed the government first to deliver a specification of how they would achieve the last amount of €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).
The Greek parliament should as a minimum pass the following 4 structural reforms:
"Liberalization of so-called closed professions (previously legally protected against competition)."
"Deregulation of goods, services and energy markets."
"Creation of a new body to manage state procurements."
"Merging of all health insurance providers with the National Organization for Healthcare Provision (EOPYY)."
In addition to the points above, the Troika also currently discuss with the Greek government how the Labor market reform should be, where the Troika reportedly pushed for lower minimum wages and a 30% reduction of the compensation paid by firms to dismissed employees; with this proposal however being rejected by the Greek government. Another point of disagreement is if the 20,000 civil servants losing their job after a merging and abolition of around 250 state organisations, should be directly laid off from the public sector (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 Greek government).
On 3 October sources from the Greek Ministry of Finance revealed, that the Troika had also requested the government to frontload the austerity package with measures of €9.3bn in 2013 with the remaining €4.2bn to be implemented in 2014. Reason being, that the Troika expects a slightly worse GDP decline in 2013 compared to the forecast published by the Greek government, and that the economy subsequently would recover faster if the austerity package frontloaded its savings for 2013. According to the Greek newspaper Kathimerini, the first extra €0.6bn of increased savings in 2013 will most likely be found by removing all Christmas, Easter and summer bonus payments for civil servants, equal to €1000 per year for each civil servant.
According to the source Kathemerini had interviewed, the Troika had also indicated they were willing to accept the large trunk of unspecified savings from structural reforms, if the Greek government were ready to accept the called for 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.
The Greek government will attempt to sign a final deal with the Troika, about the content and size of the needed "austerity package" and "Fiscal budget 2013", before the scheduled Eurogroup meeting on 8 October. If the Eurogroup approve the content of the negotiated deal, it will be submitted for a final approval or further consideration by the European head of states at the EU summit on 18 October 2012. As the exact content of the agreed "austerity package" first needs to be known, before the Troika's "surveillance report" can conduct reliable calculations and reach its conclusion about the sustainbility of Greek economy, it is expected this important report will now only get published in the first half of November.
On 17 October the Troika ended its review mission on ground in Greece, and 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 will 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 will be discussed between the official lenders and Greece."
Responding statements from the Greek government indicated an agreement about core elements of the package indeed had been agreed. There was however still disagreement about the labor market reform, with the Greek government still resisting to conduct direct layoffs or extra wage/pension cuts for public workers. And another outstanding point, was that the Greek government required that the Troika should finance a 2-year delay of the fiscal targets in the bailout plan, to avoid the need for the government also to pass an additional austerity package (beside of the one €13.5bn currently being negotiated about) to reach the initial fiscal targets. It was likewise hoped, that these additional disagreements soon could be settled during additional talks with headquarters.
At the EU summit on 19 October, it was announced the Eurogroup would arrange an extraordinary conference call meeting on 29 October with the purpose 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 on their ordinary meeting at 12 November to accept the release of the earlier withheld bailout funds.
List of main events from 16 October to 12 November
16 Oct: Details for the bank recapitalisation outlined by the new memorandum was presented. The size of the recapitalisation is still a potential €48bn, of which the first €18bn were already injected into the four biggest banks in the first half of 2012. The remaining recapitalisation will be performed in three stages. At first the Hellenic Financial Stability Fund (HFSF) will immediately inject capital to the banks so they comply with the required 9% capital ratio. At the second stage HFSF shall 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 shall before mid-June 2013 have a solution implemented. The 3 biggest systemic banks will get the remaining capital amounts covered by HFSF through the issue of common shares (where HFSF in return will pay the banks with EFSF bonds), while smaller banks will 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 will 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 is 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 will also on a yearly basis have to pay the same single rate for property tax. The tax-free bonus for families with children will also be abolished, and a ceiling will be introduced on exempted expenditures related to healthcare. Another major change is that all social benefits (previously exempted) will be taxed as salary revenues. For corporations the biggest change is, that the tax-free threshold of €5,000 euros per year will be abolished. All in all, the tax reform is expected to increase the government revenues with €3bn per year.
29 Oct: The Eurogroup working group held and extraordinary meeting to discuss the current debt sustainability in Greece, and potential solutions to improve it. No annonuncements were made in regards of debt sustainability, but it was decided to reject the call from the smallest party in the Greek coalition government (Democratic Left) to open up for a further revision of the already negotiated "labor market reform".
29 Oct: The Greek government signed a new act, that will assign Greek Finance Ministry inspectors to carry out a constant monitoring of 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 immediately to stop and correct excessive expenditures, the moment they are discovered.
30 Oct: Prime minister Antonis Samaras announced the Troika negotiations about the "Midterm fiscal plan 2013–16" and "Labor market reform" had now been successfully concluded, and was a subject for the parliaments approval next week. The party PASOK, which together with New Democracy represents a parliamentary majority, agreed to support the entire negotiated austerity package and vote yes on both bills. The third small coalition party Democratic Left, however 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. It is currently unknown whether or not the €50bn target for 2020 will be kept or also revised. The revenues collected from the privatisation program was in March 2012 forecasted not only to reduce the debt with €50bn, but also to generate an extra €60bn investments from the buyers, resulting in €3bn extra annual tax revenues for the government and the employment of 50,000 jobs; all being equal to an extra yearly GDP growth of 1%. During the first 2.5 years after the first bailout in May 2010, Greece so far only managed to sell public assets worth €1.6bn.
31 Oct: A reform package to pave the road for upcoming privatisations, was narrowly passed in the Greek parliament with 148 votes for and 139 votes against. 30 MPs from the two coalition parties PASOK and Democratic Left submitted abstained votes, as they did not want to approve it, but on the other hand neither wanted to vote directly against a reform package from their own government.
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 get a majority of votes. But it will be resubmitted for a new vote on 7 November.
31 Oct: The Eurogroup held an extraordinary conference call to discuss the Greek reform progress, and noted significant progress had been made paving the way for a full staff level agreement between the Troika and the Greek government. If certain prior actions were conducted by the Greek authorities in the following days, the Eurogroup would seek to conclude on the revision on the Greek programme at their next ordinary meeting at 12 November.
31 Oct: The Greek government presented a worsened forecast for 2012 and 2013, with real GDP expected to decline respectively with −6.5% and −4.5%, while the deficit-to-GDP will end respectively at −6.6% and −5.2%, and finally the debt-to-GDP ratio is now expected to reach 175.6% in 2012 and 189.1% in 2013.
31 Oct: The Greek government submitted the Midterm fiscal plan for 2013–16 to the parliament, with €18.8bn of austerity measures scheduled for four years. The package is frontloaded, meaning the measures will 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 will 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 Greek 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 is expected to boost the value of exported goods with 10%, while also creating 80,000 extra 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, as a protest against the parliaments expected pass of austerity measures and the "Labor market reform", that Greece needed to pass to secure a continued flow of bailout funds from the Troika.
07 Nov: The Greek parliament voted for the new 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. The bills were passed as 153 voted for, comprising 126 MPs from New Democracy and 27 MPs from PASOK, while 18 MPs abstained (of which 14 belonged to Democratic Left), and only 128 voted against. Approval of the bills however came at a price, as 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 only abstained and did not vote against the bills, they will continue to be part of the three-party coalition government, and they have pledged to support and vote for the austerity-packed 2013 Fiscal budget on 11 November.
08 Nov: The Eurogroup was gathered for an extraordinary meeting, to continue the discussion on possible solutions to improve the sustainability of Greek debt. Final decisions were as expected postponed to the next ordinary meeting at 12 November.
11 Nov: The Greek parliament was scheduled to vote for the 2013 Fiscal budget. Ahead of the vote, the party PASOK lost an extra MP having announced he had decided to vote against the party line, thus lowering the tally of PASOK MPs to 26. As an additional 126 MPs from New Democracy and 14 MPs from Democratic Left were ready to vote supportive for the bill, it was expected to pass with the support of 166 out of 300 MPs. As 2 of the previously excluded MPs from respectively 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 got passed by 167 out of 300 MPs. The vote however resulted in 1 MP from New Democracy, that although voting yes for the overall bill, decided to vote no for the amendment concerning the extra labour market measures. The partly defecting MP from New Democracy was subsequently excluded 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 gets published, that outlines the results and state for the: Greek economy, reforms, privatisation programme and debt sustainability. Among other things it shows, that the 2-year extension of the bailout programme will cost €32.6bn of extra loans from the Troika (€15bn in 2013–14 and €17.6bn in 2015–16).
12 Nov: Eurogroup and IMF will on the basis of the Troika report and the recently passed laws in the Greek parliament, consider to approve a revised bailout plan. It is rumoured the 2-year extension of the bailout plan will cost the Troika an additional €30bn. To help reduce the debt-to-GDP ratio, the Troika currently consider different proposals. The idea of another haircut or debt-write-off has been rejected by the Eurogroup. Instead the Eurogroup consider to offer "Prolonged maturities and lower interest rates on existing loans", and/or a "debt-buy-back" of the remaining privately held Greek government bonds, currently listed with a face value of €63bn (of which €22bn are held by local banks and social security funds), effectively reducing the debt as their current market price is only 1/4 of the face value. In case of the launch of a debt-buy-back, this would in practical terms mean that the Troika for additional bailout funds should buy all the remaining privately held bonds at a fixed offered price close to the market price; an operation that essentially will also need the acceptance of private investors to sell their Greek government bonds at the offered price. If all private investors accept a debt-buy-back at 30% of the face value (being the expected average offer price according to Commerzbank), 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 pass in November of the Labor market reform, Midterm fiscal plan 2013–16 and Fiscal budget 2013, however was only achieved at a high political price, as it resulted in the exclusion of several MPs from the three coalition parties. After the election in June, New Democracy (125) have lost 4 MPs while PASOK (26) lost 7 MPs, and finally Democratic Left (14) decided to freeze out 3 MPs. This mean, that the combined majority of the three-party coalition has been reduced to 165 MPs, and that the combined majority for the two most reform-friendly parties has now been reduced to the lowest possible at 151 MPs.
On 7 November 2012, amidst mass protests of tens of thousands of people, the Greek parliament narrowly approves another austerity package worth €13.5 billion. Without the vote, the troika has warned, Greece would not receive the next instalment of €31.5 billion in financial aid. Greece prime minister Antonis Samaras told MPs that this package was "definitely the last", though some commentators immediately disagreed.
The latest measures include pension cuts on average between 5% and 15% and an increase of the retirement age from 65 to 67. Wages of civil servants are cut again by up to 20%. Some workers from the public sector will lose as much as 30% of their salaries.
