14 July 2015
Webinar: The Greek Crisis and
its Impact on the Eurozone
Ignasi Guardans, Partner, Public Policy and Law (Brussels)
Giovanni Campi, Financial Services Policy Director (Brussels)
Sean Donovan-Smith, Partner, Investment Management and
Public Policy and Law (London)
© Copyright 2015 by K&L Gates LLP. All rights reserved.
WHO IS WHO? KEY ACTORS
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AGREED ON JULY 12, 2015
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Agreement to negotiate new MoU for Stability Support according to ESM
Treaty, with strictest conditionality of reforms
Several legislative measures to be approved by Greek Parliament BEFORE
start of MoU negotiations (by July 15)
Other legislative measures to be approved sequentially, but full commitment
is requested before MoU is signed.
Reform measures are not enough: new ESM programme is conditioned to
the whole package analysis (including financing need, debts sustainability
and possible bridge financing). “Start of negotiations does not preclude
results”
After full reform implementation, offer to approve debt relief measure.
(Grace periods, NO haircuts)
In parallel, European Commission to mobilise 35 bn under different EU
Programmes
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TIMELINE AND PROCESS
 Greece to legislate ‘in full prior agreement with the Institutions’ on
prior actions and Greek Parliament to vote on these and on overall
agreement by July 15
 For other prior actions, deadline July 22
 IF above goes smoothly, some National Parliaments must approve
negotiation of an MoU (Germany, France, Finland, Austria, Slovakia,
Latvia, and Estonia). Process expected: by end week/early next
week
 IF above goes smoothly, Eurogroup/ESM Board of Governors gives
mandate to start negotiations with Greece on a new MoU
 ECB left emergency funding for Greek banks (ELA) unchanged on
13 July at €89bn: ELA likely to be increased if prior actions are
timely and fully adopted
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DETAIL OF PRIOR ACTIONS
For legislative agreement and implementation by 15 July:
 Streamline VAT system (e.g. 23 per cent with less exceptions) and broadening of
the tax base to increase revenue (expected net gain of 1 per cent GDP yearly)
 Upfront measures to improve long-term sustainability of the pension system, as
part of a comprehensive pension reform programme e.g. early retirement,
retirement age
 Safeguard the full legal independence of the national statistical office (ELSTAT)
 Make the Fiscal Council operational before finalizing the MoU and introduction of
quasi-automatic spending cuts in case of deviations from ambitious primary
surplus targets
For legislative agreement and implementation by 22 July:
 the transposition of the Bank Recovery and Resolution Directive
 Adoption of a Code of Civil Procedure to reform the civil justice system with the
aim to reduce costs and accelerate the judicial process
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OTHER REQUESTED ACTIONS
Actions to be taken ‘with a satisfactory clear timetable’:
 Pension reforms by October 2015 (incl. implementation of zero-deficit clause)
 More ambitious product market reforms (incl. sales periods, liberalize closed
professions, pharmacy ownership)
 Privatize electricity transmission network ADMIE (or equivalent competition
measures)
 Review and modernization of collective bargaining, industrial action, and
collective dismissals
 Strengthen financial sector, incl. action on non-performing loans and strengthen
governance of Hellenic Financial Stability Fund and Greek banks
 Develop a privatisation programme and creation of independent fund where
assets will be transferred and monetized incl. relevant legislative framework
 Strengthen Greek administration (first proposal to be provided by 20 July for
discussion with the Institutions)
 Normalization of working methods with the institutions and their full involvement
on the ground for legal and technical assistance (request for support by 20 July)
 Amend some recently introduced legislation contrary to previous agreement
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THE PLAN WOULD CONSIST OF… (1)
 New (third) 3-year programme worth €82-86bn (larger
than the bailout plan for Portugal in 2011), to be
negotiated if conditions met
 Bridge financing (Eurogroup to decide by Wednesday,
various options being considered by an expert group)
 Greece financing needs of €12bn from now to midAugust: €7bn by 20 July (ECB, IMF repayments due)
and €5bn more by mid-August
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THE PLAN WOULD CONSIST OF… (2)
 Banks’ recap
 Included in total bailout envelope, establishment of a buffer of
€10-25bn for banking sector recapitalisation or resolution needs
 Privatisation fund
 to established in Greece: €50bn targeted total, assets pooled in
and monetized
 Used for repayment of recapitalisation of banks and other assets
- approx €25bn - banks’ assessment ‘after the summer’
 Then half of money left for debt and half for investments
 Greek debt restructuring
 Coming much later, after reforms implemented and first
successful review
 Longer grace and payment periods, no nominal haircuts
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WHAT IF…POSSIBLE RISKS
There are number of potential risks to the process:
 Outside Greece
 Political risks related to some Eurozone countries national
parliaments’ votes
 Mistrust at the time of signing of the MoU
 Inside Greece
 Political difficulties within the Greek Parliament: no
implementation
 Social unrest, strikes, other …
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K&L Gates Presenters
Ignasi Guardans
Partner, Public Policy and Law - Brussels
+32.(0)2.336.1949
Ignasi.guardans@klgates.com
Giovanni Campi
Financial Services Policy Director - Brussels
+32.(0)2.336.1910
Giovanni.campi@klgates.com
Sean Donovan-Smith
Partner, Investment Management and Public Policy and Law - London
+44.(0)20.7360.8202
Sean.donovan-smith@klgates.com