Discussions between the government and institutions continue over the next two months, with the aim that in the Eurogroup on March 16 there will be a decision on the part of the lenders with regard to some of the Greek side’s five requests for additional fiscal space. According to a top finance ministry official, the goal is to have a decision on the government’s three most mature demands.
These are: the change in the use of profits from Greek bonds, the transfer of money from surpassing the surplus targets, from one year to the next, or the exemption of refugee expenditure of EUR 200 million.
A senior Finance Ministry official said it was very likely that one or two, rather than all, of the above issues would go ahead, as the Institutions may find that the others are linked to the grater negotiation that involves the reduction of primary surplus targets.
At the same time, the government’s financial staff will proceed with debt sustainability analysis. According to sources in the finance ministry, the government’s goal is to use 70% of the fiscal space that will be created for tax cuts and a 30% on spending to boost the country’s defence capability.
Negotiations will continue at a distance, with the deadline set shortly after mid-February, as the institutions’ report on the fifth evaluation will be announced on 26 February and will be politically validated at the March Eurogroup, in which all 5 requests of Athens for additional fiscal space will be put on the table (surplus transfers, refugee expenses, change in the use of bond profits, reduction of surplus targets and reduction of solidarity contribution – ENFIA).
Competent sources at the Finance Ministry have said that there is convergence in the fiscal area but further progress is needed in at least five areas: private debt (auctions), overdue debts to the state (Institutions worry about their inadequate reduction, government guarantees), government guarantees to banks (Hercules scheme), energy market and insurance.
According to the same sources, the five requests from the Greek side for a larger fiscal space are made by the Ministry of Finance independently.
It is worth noting that some of these are likely to be linked in the negotiation process. The Greek side is not yet ready to set as a formal proposal a specific target for the reduction of the primary surplus from 3.5% of GDP currently in force, however the government’s intention remains a target of 2%. What remains a mystery is whether the institutions will accept a 2% surplus target, as well as the way it will be achieved. Institutions reportedly agreed that 2019 closed with a growth rate of 2% and still process data for 2020. However, it does not appear to be close to the 3% promised by Prime Minister Kyriakos Mitsotakis, nor the 2.8% forecasted on the 2020 budget./ibna