Brussels considers handing back reins of reform to Athens

Brussels is considering scrapping the troika that supervises Greek reforms to allow Athens to pursue its own plan to bolster the economy — in return for a drip-feed of debt relief, according to European officials.

The discussion, still in its early stages, will gather pace as Greece and its eurozone backers chart a new course for the country with its second European bailout programme due to end later this year.

Dismantling the troika, a trio made up of the European Commission, ECB and IMF and likened by some in Greece to the German Nazi occupation, would likely be central to the new plan for Athens.

After Ireland and Portugal exited bailouts earlier this year, the EU/IMF inspectorate is now only active in Greece and Cyprus, and many experts have expected Athens to require further help.

Switching to a ‘reform-for-debt- relief’ scheme with lighter supervision could soothe public frustration and help bolster the coalition government at the expense of far-left opponent Syriza, which has promised to tear up Greece’s international bailout agreement and is leading in the polls.

Elections could come as early as next year and a Syriza-led government would present a headache for the eurozone.

Under the latest thinking, policing by the troika could be replaced by a special task force from the European Commission with biannual check-ups rather than every three months — provided Greece does not require fresh funds.

In return, Athens would commit to a six-year plan of reform, where milestones would be rewarded with debt relief, such as extending the time for repayment, rather than granting additional loans.

“There would be no troika,” said one official familiar with the matter, who asked not to be named.

“There must be Greek ownership of reform. The Greeks have until October to come up with a programme, which would be decided by December for the start of 2015.”

As a fall-back, Greece could be given a precautionary line of credit from the eurozone, a second official said. If it was used, stricter supervision of Greece would resume.

The IMF would, meanwhile, continue its own bailout programme until 2016, continuing to exert influence on Athens.

“It was a mistake not to give Portugal a precautionary credit line,” the official said, referring to Lisbon’s conclusion of its bailout without such back-up. “You couldn’t make the same mistake with Greece.”

Scrapping the troika would mark the end of a model many in Greece and the European Parliament have criticised as heavy-handed. A crucial review of Greece’s bailout by the troika will begin with talks in Paris in September after Athens argued that lengthy audits in the Greek capital hurt the country’s morale.

Crucially, the new Greek programme would be dubbed one for ‘growth and employment’ instead of having a focus on budget savings. It would be drafted in the first instance by Athens rather than officials in Brussels or elsewhere.

The launch of the new six-year plan would allow the European Central Bank, where policymakers believe its new function as bank supervisor would rule out a role in the troika, to quit.

In order to be workable, however, such a scheme would need to overcome obstacles.

For one, if Athens needed fresh money, and the cost of supporting its banks were to rise for example, it could require a fully-fledged bailout.

“If extra public money is required, there is not a single parliament in Europe that would approve it,” said the first official.

Officials in Athens are hopeful another bailout can be avoided.

“We don’t want a new austerity programme. We don’t want new money,” one senior Greek government official told Reuters. “We want any alternative to be growth-and-employment oriented.

“We are committed to reforms ... but we don’t want a knife to our neck because this hurts the ownership of these reforms,” said the official, adding that the idea of staggered debt relief for reform could work so long as the monitoring ‘has no similarities’ to the troika.

As well as appealing to Greek prime minister, Antonis Samaras, such a ‘reform-for-debt-relief’ scheme is likely to receive a sympathetic hearing from European Commission president-elect, Jean-Claude Juncker. The pair met in Athens yesterday.

The final question is how to make Greece’s €320bn-plus debt mountain, which equates to roughly 175% of the country’s entire annual economic output, more manageable.

The main options for granting debt relief revolve around lowering the cost of borrowing for Greece or extending the time it has to repay, officials with knowledge of the matter said.