"No Disbursement Without Implementation"

Euro area finance ministers set three conditions

At the Eurogroup meeting last night the euro area finance ministers set three conditions that need to be fulfilled before the ministers will approve the second rescue package to Greece:

1. Parliament approval of policy package (vote set for Sunday)
2. Additional EUR325m in structural reduction of deficit to be detailed before next Wednesday
3. That the political leaders of the coalition parties sign up to the implementation of the programme.

The Luxembourg Prime Minister Jean-Claude Juncker stated that all three elements need to be in place before the second rescue package and the PSI operation can be implemented. Juncker expressed his view very clearly: "In short: no disbursement without implementation". He added: "We can't live with this system while promises are repeated and repeated and implementation measures are sometimes weak".

The Euro working group is set to meet on Tuesday and a new extraordinary assembly for Eurogroup finance ministers has been set for Wednesday, but these meetings are conditional on Greece fulfilling the three conditions.

At the meeting Juncker confirmed that the new rescue package and PSI aim to reduce the debt level to 120% of GDP by 2020. The new package will be constituted by up to EUR100bn in additional financing and up to EUR30bn in official sector contribution to bank restructuring in the wake of the PSI.

All eyes on Greece this weekend

According to Greek Finance Minister Evangelos Venizelos the parliamentary vote on the new austerity measures will be on Sunday and that this basically amounts to a Greek ballot on euro membership. A vote that furthermore will take place in the midst of a new two-day general strike starting today. We expect that the austerity package will pass.

Risk of hick-up is real

The risk of hiccups in the process to avoid a Greek default has increased. Clearly several euro area member states are now ready to choose the other road - Greek default and possibly euro exit - instead of giving more funds, if Greece is not committed to deliver the necessary austerity and structural reforms. In addition, the risk of social unrest in Greece is on the rise after a week with general strikes Tuesday and again today and tomorrow. Nevertheless our main scenario is that Greece will deliver on the three demands from the Eurogroup and get the bailout package in time to avoid an uncontrolled default.