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Agreement reached with troika on state defence industries

Hellenic Defence Systems (EAS) to be split into military and civilian components

Troika also approves disbursement of an outstanding €1bn loan payment, pending since July. It is now up to the European Stability Mechanism (ESM) to make a final decision on the payment when it meets next Thursday

International Monetary Fund (IMF) deputy director and mission chief to Greece Poul Thomsen (R) arrives at the finance ministry, 16 December 2013 International Monetary Fund (IMF) deputy director and mission chief to Greece Poul Thomsen (R) arrives at the finance ministry, 16 December 2013 The government has received the green light from the troika for a controversial restructuring plan for the country’s main defence industry, which will see the company split into two.

In a meeting that concluded late on Monday night, the austerity overseers have also approved the disbursement of an outstanding €1bn loan payment, pending since July.

The government believes the decision will make things easier for Finance Minister Yannis Stournaras, who will travel to Brussels on Tuesday evening for a meeting of the Eurogroup, with a high-level finance ministry source claiming that he was “certainly optimistic” that the Eurogroup’s would approve the decision on EAS.

“We hope that there will be no veto by an EU partner,” he added.

If the Eurogroup lends its support, the European Stability Mechanism (ESM) will make the tranche payment on Thursday

Leaving the meeting, Poul Thomsen, who represents the IMF on the troka, said: “We have made some progress. I will be back in January.”

After days of negotiations, the two sides agreed on a restructuring plan for Hellenic Defence Systems, which employs about 1,000 people, under which the company the will be split into a civil and a military divisions.

The latter will be obliged to repay illegal state subsidies and will eventually be closed down, while the military operation will continue operating for a transitional period but with less staff and with an export orientation.

Outstanding issues

However, the government has left open the possibility to go ahead - by Friday - with passing legislation on the sensitive issues of bank repossessions of homes and VAT on restaurants and catering.

Any moves in these areas will be with troika’s tolerance, as no agreement was reached on those two matters.

“We will legislate, if not with troika’s agreement, with its tolerance,” a high-ranking development ministry official said.

The finance ministry source also said that nothing was being done in disagreement with the troika.

“We don’t want to go ahead with unilateral action; we would like to have troika’s tolerance.”

The government wishes to extend the existing ban on home repossessions by banks for one year, by introducing objective criteria that would protect some homeowners in difficulty, such as income levels, assets, objective property values and amount of the mortgage already repaid.

A development ministry source claimed that the differences between the two sides has been reduced, with “the troika moving considerably towards our position”. He said that discussions on the issue would “continue through email and the telephone and at government level".

“What is of concern to the troika regarding home foreclosures is the stability of the banking system,” other development ministry officials said.

The government is also pushing to extend the reduced VAT rate of 13% in the hospitality sector, as the measure, introduced last summer, is due to expire on December 31.

Return

The troika inspectors are due to return to Athens in mid-January for a new round of negotiations on issues including the fiscal gap for 2014, the medium-term programme for 2014-2017, waiving taxes for third parties and reducing employers social security contributions.

The finance ministry source said that during the new round of talks, the government will present to the troika a number of equivalent structural measures to close the fiscal gap. The same source ruled out new austerity measures, such further cuts in wages and pensions and tax hikes.

This round of negotiations should be completed by the Eurogroup meeting of January 27, so that approval may be given for the disbursement of the €4.9bn tranche to allow the government to pay off some €5.5bn in state bonds maturing in May.

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Poul Thomsen
Yannis Stournaras
Hellenic Defence Systems (EAS)
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