Euro zone won’t release new money for Greece until reforms done

Piggybank painted in colours of Greek flag stands amongst various euro coins in this picture illustration taken in Berlin
A piggybank painted in the colours of the Greek flag with a 20 euro banknote in it's slot, stands amongst various euro coins in this picture illustration taken in Berlin, Germany June 30, 2015. REUTERS/Pawel Kopczynski/Files

November 9, 2015

By Jan Strupczewski and Francesco Guarascio

BRUSSELS (Reuters) – The euro zone will release the next tranche of loans for Greece as well as money for bank recapitalization only after Athens implements agreed reforms, euro zone finance ministers said, noting a Greek pledge the conditions would be met this week.

A European Central Bank Stress test showed at the end of October that Greek banks needed a total of 14.4 billion euros in additional capital if they were to survive a scenario of adverse economic conditions.

Some of the needed total is likely to come from private investors, but the euro zone will have to provide the rest, using all or part of the 10 billion euros already earmarked for that purpose in the euro zone’s bailout fund.

“We await the finalization of all the measures in the first set of milestones and the financial sector measures which are essential for a successful recapitalization process,” the ministers said in a document at the end of a meeting on Greece.

The euro zone recapitalization money is in the form of bonds of the euro zone bailout fund that can be transferred to the Hellenic Financial Stability Fund (HFSF), which would then hand them over to the banks.

“We stand ready to support the disbursement of the 2 billion euros sub-tranche linked to the first set of milestones and the transfer to the HFSF of the funds needed for the recapitalization of the Greek banking sector out of the 10 billion euros earmarked for this purpose, provided that the agreed conditionality is met,” the ministers said.

Prime among the disagreements for the Greeks is protection for poorer families in danger of losing their homes through foreclosure.

Dijsselbloem said passing the foreclosures law was key before banks could be recapitalized, because it had a direct impact on the number of bad loans that banks would have to deal with through recapitalization.

But Greek officials note that repossessions are politically sensitive at a time when Athens is undertaking to provide food and housing for thousands of asylum-seekers under a plan to handle the European Union’s migration crisis.

Officials in the leftist-led government say a wave of evictions could boost support for the far-right Golden Dawn party.

Differences between Athens and its euro zone partners also remain in how to treat taxpayers who are late repaying overdue tax under a special scheme.

There is also no agreement on the minimum prices of medicine and on a tax on private education, official said.

“We welcomed the commitment by the Greek authorities that this conditionality will be fulfilled in the course of the week,” the ministers said.

They said their deputies would meet at the start of next week at the latest to assess if the reforms have been implemented as agreed, paving the way for any disbursement.

Greece said on Monday it would need a political decision to overcome a dispute, so that thousands of poorer Greeks would not be at risk of losing their homes as banks repossess them.

Greek Prime Minister Alexis Tsipras and European Commission President Jean-Claude Juncker discussed the bad loans issue by telephone on Sunday. French President Francois Hollande and German Chancellor Angela Merkel also talked about it by phone.

“Greece is making considerable efforts. They are scrupulously respecting the July agreement,” French Finance Minister Michel Sapin told reporters. “I want an agreement to be reached today. France wants an agreement today.”

Greek officials stress that Athens wants to fulfill all the points of the bailout agreement, but for the reforms to fly, they have to have social cohesion, which means not making life more difficult for poorer citizens.

“The Eurogroup will press Greece to find sufficient solutions till Wednesday,” one euro zone official said.

“There is always room for compromise but I don’t think the ministers would accept rules that are much more favorable for people not paying their mortgages than in any other country,” the official said.

(Additional reporting by Francesco Guarascio and Robert-Jan Bartunek Editing by Jeremy Gaunt)