Troika puts Greek adjustment program to the test

Troika puts Greek adjustment program to the test


By Lefteris Yallouros – Athens

The troika revisits Athens on Tuesday to hold talks with the Greek government and start the latest review of the Greek adjustment program.

Greek officials will be feeling a lot more confident and relaxed ahead of this meeting following a week of good news for the country’s troubled economy.

Last week, the IMF disbursed a loan tranche of EUR 1.74 billion to Greece and the European Financial Stability Facility (EFSF) also transferred EUR 7.2 billion for the recapitalization of the banking sector.

Furthermore, Eurogroup chief Jeroen Dijsselbloem, visiting Athens last Friday, said a new haircut on Greek debt could be on the cards with discussions possibly beginning April 2014. The Dutch official praised the Greek government’s efforts to adhere to the fiscal adjustment program and said a lot depended on the continuation of this drive as well as Greece achieving fiscal primary surpluses soon.

The troika is now expected in Athens to make sure Greece remains on track. Three issues will be on the agenda:

1. Assessing the size of the potential fiscal gap for 2015-16 ahead of a new midterm fiscal plan being drawn up in September

2. Evaluating the bank recapitalization process and drawing up a plan to deal with bad loans

3. Determining the income target of the government’s privatization drive; it could be reduced from EUR 2.6 billion to EUR 2 billion

Greece will also present progress on structural reforms (including changes to the energy market) and set out objectives in reference to planned layoffs in the civil service.

Greece will want to make sure all prior actions are met so that the next tranche of its rescue loan (EUR 3.3 billion) will not be put at risk.

Poul Thomsen, representing the IMF in the troika, was quick to point out that “some reforms are lagging”.

However, the government will almost certainly push for VAT cuts for the food services sector. Not much is expected to come from that, as the troika has already ruled out any tax cuts despite improved fiscal performance in 2013.