Race against time to complete Greek bailout

Race against time to complete Greek bailout

The Greek government is aiming to strike a technical agreement to conclude the 4th and final review of its bailout program at the 24 May Eurogroup meeting, in order to rubber-stamp the agreement at a political level at the 21 June Eurogroup meeting via a comprehensive deal which will include debt relief measures and arrangements for post-bailout surveillance.

Speaking to the Athens News Agency anonymously, a senior government official explained that the road map is similar to the one followed during the previous review, when a staff-level agreement was reached in December 2017 and the “green light” for the disbursement of funds came at the January Eurogroup meeting.

The most important aspect of this positive scenario Athens is cultivating, analysts point out, is that, in the view of the Greek government, International Monetary Fund participation in the bailout program is “desirable” but not necessary.

Athens also appears to be conceding that time will not suffice for all 88 prior actions of the 4th review to be concluded imminently. Therefore, any obligations outstanding will be assessed by the European Stability Mechanism when it decides to disburse the final 11.7 euro loan tranche to Greece. Most of these funds will be used to build a cash buffer, allowing Greece to access debt markets in future without relying on a precautionary credit line.

Over the weekend, crucial talks on debt relief, a post-program arrangement and the IMF’s participation in the Greek program unfolded between the so called Washington Group of Greece’s creditors in the US capital.

IMF Managing Director Christine Lagarde met with Greek Finance Minister Euclid Tsakalotos on the sidelines of the IMF Spring Meetings. According to reports, the IMF chief did not rule out the possibility of the IMF demanding the slashing of the income tax-free threshold is brought forward to 1 January 2019. The measure has already been legislated and is expected to kick in January 2020. However, Athens is hoping it could persuade creditors to put it off, if the Greek economy continues to meet agreed fiscal targets.

As things currently stand, this measure – along with pension cuts in January 2019 – are expected to apply in order to ensure ambitious primary surplus targets (3.5% of GDP) are met in coming years.

Meanwhile, according to Finance Ministry sources, despite fruitful talks in Washington last week, the IMF has yet to decide whether or not to join the Greek program as a lender. Athens still hopes the IMF’s fiscal projections for Greece will be proved wrong in June when official Q1 figures are released. The Greek Finance Ministry believes the Washington-based Fund is using its pessimistic primary surplus forecasts in order to pressure Greece’s European creditors to agree to bold debt relief.

“Time is running short for us to be able to activate the program,” Poul Thomsen, director of the International Monetary Fund’s European department said last Friday.

In any case, discord continues to exist between the IMF and European creditors – chiefly Berlin – on the mechanism with which Athens will unlock debt relief measures. Europeans insist on strict conditionality while the IMF is in favor of automatic relief being applied.

There also appear to be disagreements over a growth plan proposed by the Greek Finance Ministry for the post-bailout era. Discussion of the aforementioned issues will continue at the next Eurogroup on Friday 27 April./IBNA