By Christina Vasilaki / Crisis Observatory

“We need to proceed with safety and wisdom. Europe has not yet returned to a growth trajectory,” said Antonis Samaras after the two-day EU Summit that was held in Brussels, between 23 and 24 October.

According to the Prime Minister, the global economic climate remains volatile and, as a result, Greece needs a “sense of security,” he said emphatically with regard to the imminent end of negotiations with the Troika and the transition to the post-memorandum era.

The Prime Minister noted that he met with many European officials and leaders during the Summit, mentioning the ECB President, Mario Draghi, the French President, Francois Hollande, the Prime Minister of Italy, Matteo Renzi, the Dutch Prime Minister, Mark Rutte, as well as the Prime Ministers of Ireland and Spain, Enda Kenny and Mariano Rajoy respectively. Additionally, government sources communicated the proposal of the Greek government concerning “the day after,” i.e. the formulation of an enhanced precautionary credit line from the 1st of January onwards, after the conclusion of the European part of the programme. Greece is seeking to establish a “cushion” of potential funding, in case that the markets do not allow Greece to borrow at favourable rates. The government has proposed to direct the still unallocated funds of the current programme, which were earmarked for potential capital requirements of the banks, at this “cushion”. However, this amount shall first be reimbursed to the European Stability Mechanism (ESM) to reduce the state debt, so that it does not add up to the existing debt if not used. The objective is to also assign the yields of Greek bonds held by the central banks of the Eurozone member-states to this fund.

The duration of this programme of precautionary credit line will amount to one year, according to the plan, whereas it will be activated only when the country bears no responsibility for the behaviour of the markets, which in turn shall be determined by strict terms and conditions.

As far as the fiscal aspect of the terms is concerned, the targets for the deficit and debt shall remain unchanged, whether the funds are used or not, while the implementation of a package of structural reforms will also be decisive. Progress reports will take place every six months and will be carried out by the institutions of the Eurozone, the European Central Bank and the European Commission, with the IMF’s role being limited to that of a technical adviser, once the current funding programme is discontinued, which would otherwise run until 2016.

It should be noted that the proposal remains under negotiation -as the Greek Prime Minister also pointed out in his speech- with decisions bound to be made no earlier than December, and with the last Summit of the year, on the 18th and 19th of December, as the ultimate deadline.

In any case, Brussels has made clear that the single most important thing for Greece’s future is to ensure the close monitoring of the progress of reforms, which should function as reassurance for the markets.

Growth at the centre of EU Summit discussions between the Eurozone leaders

Thorough debates on how the European economy can avoid a new recession, the possibility of which is supported by the alarmingly low levels of inflation, were held by the Eurozone leaders during the second day of the Summit, in the presence of the head of the ECB, Mario Draghi, and the head of the Eurogroup, Jeroen Dijsselbloem. In fact, they agreed to work on an enhanced structure of economic governance, with a view to coordinating their actions to boost growth.

“Structural reforms and sound public finances are key conditions for investment. To this end, the European Council invited the Commission, the Council and the Member States to translate these orientations into concrete policy actions without delay,” as stated emphatically in the Summit conclusions. Moreover, specific reference is made to Jean Claude Juncker’s proposal to allocate an additional €300 bn. for investments from both private and public sources, for the period 2015-2017. The European leaders welcomed this initiative and proposed the establishment of a task force under the European Commission and the European Investment Bank (EIB), whose objective will be to “define specific actions to boost growth, including specific mid- and long-term plans”.

In the background of the meeting, however, tensions arose between the “hard” block of the North and particular leaders who -faced with economic and political problems within their respective countries- voiced their intentions to deviate from the strict policy of fiscal discipline imposed by Brussels and Berlin.

On the occasion of the budget deficits of France and Italy for 2015 –namely two among the five draft budget plans for which the Commission requested further information last Wednesday- the discussion focused on the policy mix needed for the Eurozone to overcome the impasse. The Italian Prime Minister, Matteo Renzi, opposed the outgoing Commission President, Jose Manuel Barroso, for having publicised a letter by the Commission that sought to include additional cuts in the budget of his country for 2015. In the end, the Italian agreed to the proposals, given that they amount to a mere “one or two billions”.

French President Hollande, on the other hand, said that there is no scope for further savings and that he shall make use of any flexibility clauses offered by the Stability and Growth Pact. 

In contrast, Dalia Grybauskaitė, Prime Minister of Lithuania -which is bound to join the Eurozone in the coming year- stated that austerity should keep on while boosting investment, thus staying totally aligned with the line of Berlin.

The finance minister of Holland, Jeroen Dijsselbloem, who also chairs the meetings of the Eurozone finance ministers, declared that structural reforms are essential and that “France and Italy are quite ambitious in terms of reforms and modernisation of their societies, their government and economy, and that is the key”.

According to foreign agencies, which invoke sources that were present in the discussions, Chancellor Merkel spoke of a “mixture” of private investments, fiscal discipline and opening up to fast-growing Asian economies.

Climate and Energy

The core issue of the October Summit, nevertheless, was the creation of a new EU policy framework on climate and energy for the period 2020-2030. 

The agreement reached by the EU leaders, which has been the outcome of tough negotiations between conflicting mindsets, provides for the reduction of greenhouse gas emissions by 40% in the EU by 2030, for the increase in the use of renewable energy at 27% of total consumption, as well as for a 30% reduction in overall energy consumption.