Author: Jorge Valero
Eurozone and IMF officials met with Greek Finance Minister Euclid Tsakalotos this afternoon (10 February) to overcome the stalemate in the bailout programme after the lenders agreed to request an additional €3.6 billion in cuts by 2018.
The Europeans and the IMF enjoyed a bitter dispute over the last months about the fiscal situation the country will reach once the rescue programme is completed in 2018.
The bloc believes that Athens would reach the agreed 3.5% of GDP primary surplus target (before the payment of debt obligations). The Europeans also believe that the ailing country would be capable of maintaining this budgetary surplus over the next few years.
But the Fund concluded that Greece would reach only 1.5% of GDP of primary surplus by 2018. Moreover, according to its updated debt sustainability analysis, the country is on an “explosive” trajectory.
Both sides finally reached an agreement today. The lenders reached a breakthrough before the looming elections in the Netherlands (March) and France (April and May) further complicating the political landscape.
Some officials were concerned that if no deal was reached by mid-February, Athens could default on a €7.5 billion payment due in July.
But Dijsselbloem played down these risks and said “the stories of crises are greatly exaggerated”.
“Reform in Greece is going slowly, but indeed it’s going in the right direction,” he added.
The leaders agreed on requesting additional efforts from Greece worth 1% of its GDP (€1.6 billion) both in 2017 and 2018.
These adjustments would come from broadening the tax base and on pension cuts, officials told Reuters.
The additional austerity dose would hardly be accepted by the government led by Alexis Tsipras. The leftwing Greek leader promised not to impose further cuts or tax raises after almost seven years of painful measures adopted in exchange for the lenders’ money.
The Greeks have also opposed further pension adjustments, as it has adopted 11 cuts since 2010.
Avoid ‘panic sessions’
The meeting on Friday was kept largely a secret, and it was not confirmed that a statement would be issued with the results, sources told Euractiv.
It was expected that Managing Director of the ESM Klaus Regling and senior representatives from the IMF and the European Commission would also attend the meeting, together with Tsakalotos and Dijsselbloem.
An official told De Volskrant, a Dutch newspaper, that the reason for the secrecy was “to avoid a repeat of the panic sessions that characterised 2010-2015″.
The disagreement on the budgetary situation and the debt trajectory for the next decades went public over the last weeks, as IMF and European officials discredited each others’ analysis about the country.
Regling wrote in the Financial Times that “a sober” look at Greece’s outstanding debt proved there was “no cause for alarm”.
But IMF chief Christine Lagarde told her European partners that the Fund’s analysis “tried in full honesty to be… ruthless truth tellers”.
Greece’s public debt peaked at 181.6% of GDP in 2016, and it is expected to decrease to 172.4% of GDP in 2018, according to the Commission.
The primary surplus target is only part of Greece’s problems.
Some estimate that Greece still needs to complete half of the reforms (prior actions) requested by its lenders to unblock €6.1 billion from the €86 billion bailout programme.
The new adjustments would come against the backdrop of a still delicate economic situation. Although the country registered a 1.8% of GDP growth in the last quarter of 2018, its unemployment level of 23% is the highest among its EU partners.