Athens - Greece’s auditors are pulling together a list of
policies the country needs to implement to unlock additional bailout funds as
they prepare for the resumption of talks with Athens on Tuesday, two people
familiar with the matter said.
Greece has asked European lenders for a draft
Supplemental Memorandum of Understanding and the International Monetary Fund
for a Memorandum of Economic and Financial Policies as it braces for
details of creditor demands, the people said, declining to be identified
as negotiations between the two sides aren’t public. The government expects an
accord in March or early April, but the scale of pending issues raises concerns
they may be politically hard to sell at home, they said.
“Delays are likely to continue until funding pressures
start materializing further down the line,” Merrill Lynch International
analysts including Athanasios Vamvakidis wrote in a note to clients on Monday.
“Risks remain high.”
Greek Prime Minister Alexis Tsipras’s government last
Monday agreed to legislate structural reforms demanded by the IMF that will
lower the threshold of tax-free income and amend the pension system by 2019,
effectively crossing what it had once characterized as a red line. The
government says the deal won’t increase austerity since the new legislation
will include stimulus measures in addition to belt-tightening reforms.
Tsipras told lawmakers on Friday that the bailout review
can be completed by March 20 when euro–area finance ministers are set to meet
in Brussels. It could drag on to the next Eurogroup meeting on April 7th given
the number of outstanding issues that need to be resolved, the people said.
Greece is looking for a “global deal” by May that would also include potential
decisions on medium-term debt-relief measures and the inclusion of Greek bonds
in the European Central Bank’s debt-purchase program.
Greek bonds fell on Tuesday, with yields on 10-year notes
rising 6 basis points to 7.19 percent at 12:30 p.m local time in Athens. The
Athens Stock Exchange General Index fell 0.2 percent.
More measures
The auditors’ proposal would elaborate on the
measures creditors demanded from Greek Finance Minister Euclid Tsakalotos
in a crisis meeting in Brussels on February 10.
After the two sides reach a so-called
staff-level-agreement on what needs to be done, the euro-area’s finance
ministers will discuss additional debt relief options, which are being demanded
by the IMF as a condition to participate in the Greek bailout. The
Washington-based fund is likely to ask for a more concrete description of the
“medium-term” instruments that will be adopted after 2018 to ensure that
Greece’s obligations return to a sustainable path.
“More progress will be needed to bridge differences on
other important issues, and it is too early to speculate about the prospect for
reaching staff-level agreement during this mission,” the IMF said last week.
Read also: 'Greece's public debt can be managed'
Greece is being asked to implement ambitious fiscal,
labor and energy reforms. Negotiations could lead to a quick agreement if
there’s political will in Athens and a realistic approach from lenders, one of
the people said. If not, the auditors’ mission would probably be short and
another round of meetings will be required to reach an accord.
Populist measures
Creditors have asked new austerity measures of as much as
2 percent of gross domestic product, which will be put in place by 2019 if
Greece misses its budget targets. Athens believes that this number could fall
to between 1.7 percent and 1.8 percent because of an improved budget
performance in 2016 and its carry-over effect for the coming years.
Bailout institutions have asked that the measures come
from a further cut in the income-tax-free threshold equal to 0.75 percent of
GDP, another 0.75 percent of GDP decrease in pensions and 0.5 percent from
other unidentified policies. All these measures need to be pre-legislated.
Parliament will vote them now and they will be effective from January 1st,
2019.
At the same time, the Greek government will have to agree
with creditors on the offsetting measures that will be triggered if it beats
its budget targets. Athens expects that the creditors will demand that these
policies be focused on tax cuts for companies and cuts in social contributions.
The government plans to push for some more populist measures.
Contentious points
Greece also has to close a projected fiscal gap for 2018
as creditors doubt it will meet an agreed target for a budget surplus before
interest payments equal to 3.5 percent of GDP. The government has identified
extra measures of 500 million euros out of 700 million euros ($741 million) of
the estimated gap identified by European auditors. Athens says it can raise the
remaining 200 million euros, thanks to the better-than-expected budget performance
in 2016.
Labour market reforms is another minefield for the
negotiations. The government wants to reinstate an earlier collective
bargaining framework, while auditors have made clear they don’t want Greece
backtracking on labour market deregulation. On collective dismissals, the
lenders are more flexible and may not ask the government to double the mass
dismissals threshold to 10 percent, the people said. This would be the case
only if government changes the legal framework to make it easier for companies
to fire employees.
In the energy market the government and auditors disagree
on the way electric power auctions work. Another sticking point is the
out-of-court debt settlement framework for bad loans, which is under public
consultation. Discussions are still under way on which exceptions to include
and what the debt-haircut level must be. There are also other less important
issues still pending for the bailout review to be completed, like store
openings on Sundays, which the government opposes.
“We are confident that solutions can be found, as has
always been the case, to conclude the review and ensure continuing progress and
reform implementation in the Greek program,” European Commission spokesman
Margaritis Schinas told reporters in Brussels on Monday.