Last week’s Eurogroup was just a first step towards a final deal between creditors and the Greek government in order for the bailout programme to get again back on track.
Technical teams from the EU Commission, ECB and the IMF went back to Athens on Tuesday, carrying with them a list of new measures.
Among the new measures are, an updated memorandum of understanding, debt relief, mid-term fiscal targets, a deal with the IMF, and finally, a disbursement of the bailout money before July that Greece has to pay around €7 billion of debt.
According to European sources close to the negotiation, the target to make the technical deal before next Eurogroup of March 20 is ambitious but still feasible.
However, this technical deal is not enough either for next bailout disbursement or the country’s inclusion in the QE.
Although the exact measures will be defined over the coming days, all players speak about measures of 2% of GDP.
Structural reforms including labour market, income tax reform and pension system reform are the three pillars of the deal to be negotiated.
According to EU and IMF officials, European institutions and the IMF are going to the table of negotiations with a common position concerning the reforms that the Greek government has to implement as they are a pre-condition for the IMF to be on board.
As the labour market is concerned, things are not going to be easy for the Greek part.
Greek Labour Minister Efi Achtsioglou has repeatedly said that collective bargaining has to be recovered.
She argues that reforms already done since 2010 until now, didn’t meet the target of moving to a decentralised system of collective bargaining but instead, they lead to the collapse of the system.
For this reason, the Greek government is claiming that the 2015 deal clearly says that “the Greek authorities have to be in line with best European practices concerning the collective bargaining, collective dismissals and unions’ legislation”.
The IMF, on the other hand, says it can discuss “the best practices” from now on in a series of issues, but not on what has already been agreed, and is stressing that the collective bargaining issue is closed.
Regarding pensions, the IMF is asking for a new policy mixture which has to reduce government’s total expenditure.
According to data that the IMF is using, the total expenditure of the Greek government for pensions is around 9 to 10% of GDP, while the European average is not over 2%.
As a counter measure, the IMF is proposing the Greek government adopt measures to counter unemployment and create a new social safety net for the weakest part of the society.
Regarding the income tax system, the new policy mixture to be proposed consists of two things: one, a broader tax base and, two, a lower minimum tax-free income so that more people will share the tax burden as IMF experts have stressed.
Energy market and privatisations will be also on the table.
For the IMF, privatisations will not be at the core of their demands as they argue that previous experience shows that revenue projections for this field in Greece are usually much higher than what can really be achieved.
When all these conditions are agreed, then a new updated memorandum of understanding has to be signed between all sides.
The measures on pensions and income tax have to be legislated now and implemented in 2019 and 2020, which means after the end of the bailout programme in August 2018.
*AUSTERITY VS COUNTER MEASURES *
It’s the first time that Eurozone players and the IMF are openly talking about the need to end austerity in Greece.
All of them admit that the country has done a lot of progress concerning fiscal adjustment.
However, asked if austerity is really over, there is some reluctance.
“Maybe”, “could be”, “if everything goes right” is the most optimistic answer.
Some others, admit that sacrifices are not over for citizens.
And that’s because although the new policy mixture to be adopted will include positive and growth measures, it will surely include pension cuts and extra taxation for some.
The exact package will be defined over the next two weeks.
For the IMF, the two coming weeks are crucial and the technical teams could go back to their bases holding a deal in the best case scenario, or without one, in the worst case scenario.
The positive part of this negotiation are the growth-promoting measures.
These measures will be decided between the Greek government and the institutions. They will be legislated now but implemented in 2019 and 2020 when and if the Greek economy over performs as the fiscal targets are concerned.
If all this process goes to plan, then the IMF and the Eurozone will have to decide what will happen with the debt relief measures and the mid-term fiscal targets concerning primary surpluses.
As for the debt, the IMF’s position hasn’t changed at all.
In order for the Board to decide the participation of the Fund in the programme with a new loan, a roadmap which will define the measures to restructure Greek debt has to be on the table even if the process of relief starts at a later stage.
Besides, both sides have to agree on the height of the primary surplus over the coming years after the end of the programme.
The Germans want a primary surplus of 3.5% of GDP lasting 10 years, but this is highly unlikely to be accepted by the IMF which has always considered this target as completely unrealistic.
That’s because they think it’s politically difficult and also drags down growth.
If there is a deal at that level as well, then the IMF’s board can give the green light for a new loan to Greece.
A new memorandum of understanding has to be signed between Greece and the IMF this time, which will include 3 to 4 prior actions and it could even last for two years.
The most likely scenario is that it’s going to last until August 2018 when the third programme is also coming to an end.
ECB and QE
When all these steps are done, then the ECB will conduct its own debt sustainability analysis.
On that basis, the ECB may propose to its members, who are representatives of all Eurozone member states, to include Greece in the QE programme.
This is very important for the Greek government as it could create a positive environment for the country and it could lead to a reduction of the cost for financing the Greek economy.
All players still in the “game” believe that Greece has now a chance to see light in the tunnel and be over with bailout programmes.
The third bailout programme could finish in August 2018 without even all money disbursed.
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