The European Court of Auditors (ECA) announced last week that it will examine the post-programme surveillance for Ireland, Portugal, Spain, Cyprus and Greece. The five countries received financial support after the 2008 financial crisis.
All EU member states are normally subject to a standard surveillance under the so-called European Semester, a cycle of economic and fiscal policy coordination within the EU. If, however, a member state experiences serious financial difficulties, it can apply for a financial assistance programme. After the 2008 financial crisis, this was the case for Ireland, Portugal, Spain, Cyprus and Greece.
After exiting a financial assistance programme, a euro area member state is placed under post-programme surveillance or enhanced post surveillance (PPS), as in the case of Greece. The aim of PPS, which is implemented alongside the European Semester, is to ensure that member states are able to repay the financial assistance granted.
“Now that the global economy is being severely impacted by the COVID-19 pandemic, it is important to know if the pillars of the EU’s economic and financial architecture are solid and effective”, said Alex Brenninkmeijer, the ECA member responsible for the audit and a former Ombudsman of the Netherlands (20 August).
“Our audit will also consider the suitability of post-programme surveillance as a monitoring tool for the economic recovery fund currently under discussion,” he added.
The purpose of the audit is to examine the design, implementation and effectiveness of the Commission’s post-programme surveillance for the five member states concerned. The audit – due for completion by mid-2021 – will look in particular at whether the Commission’s work provided creditors with assurance regarding member states’ repayment capacity.
According to ECA’s preview describing the planned audit, the minimum initial surveillance period following exit from the financial assistance programme is the time needed to repay 75 % of the loans, but this can change due to early repayments or further restructuring. Current repayment periods vary wildly, ranging from 2027 (Spain), to 2031 (Cyprus), 2040 (Portugal), 2042 (Ireland) until 2070 (Greece).
Greece alone received €376 billion or two thirds of the total financial assistance to the five countries. With a government debt to GDP ratio of 177 % in 2019 – higher when it started to receive the loans – it is one of the most indebted countries in the world. The average debt ratio in the euro area is 84 % according to Eurostat.
The Brussels Times asked ECA about the chances that Greece with its huge debt will be able to repay the loans. “Information is necessarily limited at this stage,” the auditors replied and declined to clarify if debt relief or cancellation will be included in scope of the audit.
The audit takes place in the middle of a new economic crisis due to the coronavirus pandemic. How will that influence the audit and its conclusions? “As far as possible, the audit will take account of the impact of the pandemic on the Commission’s assessment of member states’ public finances and their repayment capacity,” the auditors ensured.
The Brussels Times