Two statements made today by the head of the finance ministers of the eurozone, Jeroen Dijsselbloem, highlight that the European Union will have to provide additional financial assistance to several countries that are currently under bailout programs. The Dutch finance minister said that Greece and Ireland could need some extra help next year. Stratfor also expects Portugal to be among the countries demanding assistance next year.
Inspectors of the European Central Bank, the European Commission and the International Monetary Fund will visit Greece in mid-September to assess the status of the Greek bailout. This happens at a time when Athens is under pressure to speed up its process of privatization to sell troubled state-owned companies and to lay off workers in the public sector
But lagging privatizations are not the only issue in Greece these days. In August, Greek authorities stated that Athens may need some extra money next year to cover a budget gap in 2014 and 2015. This made German leaders, including Finance Minister Wolfgang Schaeuble and Chancellor Angela Merkel, to admit that Greece may need more help next year.
And there’s an even thornier issue: The IMF and Athens have suggested that Greece may need an additional restructuring of its public debt, on top of the one that took place last year. This issue could be particularly controversial because a new haircut would involve the so-called official sector, that is, central banks and other official institutions that currently hold Greek debt.
In addition to Greece, Ireland may also need assistance next year. The Irish bailout expires in January 2014, and Dublin has suggested that it could request a precautionary credit line from the IMF and Europe’s permanent bailout fund, the European Stability Mechanism. The goal of this credit line would be to backstop Irish bonds when Dublin returns to the financial markets next year. This precautionary credit line would not involve the immediate disbursement of money because the money would only be used in cases of need. However, these kinds of loans often involve some kind of conditionality, and this will be the key negotiation issue later this year.
The situation will be followed closely by Portugal, whose bailout expires six months after the Irish bailout. Like Dublin, Lisbon hopes to fully return to financial markets after its bailout program ends, but it will probably request additional assistance from its lenders to make sure that bond yields remain at tolerable levels.
Despite campaign rhetoric in Germany and pressure from the European Union, most governments in the eurozone understand that additional financial assistance to crisis countries will be necessary next year. But governments in northern Europe will be extremely reluctant to provide additional assistance to countries that have been receiving money for a long time. As the crisis moves to the north, countries such as Germany, Finland and the Netherlands will have to find a balance between assisting their neighbors in the south and ensuring that taxpayers’ money will not be misspent.
Additionally, governments in the south will push for softer conditionality. These countries have been dealing with dire economic conditions for at least five years, and their populations are growing increasingly tired of spending cuts and high taxes. This fragile balance between assistance and conditionality will mark the European Union in 2014.
