Bailout negotiators get go-ahead to return to Greece

AP News
Posted: Feb 20, 2017 2:48 PM
Bailout negotiators get go-ahead to return to Greece

BRUSSELS (AP) — Greece and its European creditors agreed Monday to resume talks on what economic reforms the country must make next in order to get the money it needs to avoid bankruptcy and a potential exit from the euro this summer.

The creditors also hinted that they would temper their demands for budget cuts — a welcome thought for austerity-weary Greeks who have seen poverty and unemployment spike as their economy shrank by a quarter over the recent crisis-ridden years.

"There will be a change in the policy mix, if you will, moving perhaps away from austerity and putting more emphasis on deep reforms," said Jeroen Dijsselbloem, the eurozone's top official.

At face value, that means fewer tax rises and spending cuts and deep reforms to the country's tax system, pensions and labor laws.

Such reforms could help the economy and generate income that the Greek government can use to push for further growth — such as through tax cuts or even spending increases.

"There could be fiscal space for growth-enhancing measures," Dijsselbloem said.

Easing up on austerity has been a key demand of Greek Finance Minister Euclid Tsakalotos. Greece's left-wing government has lost a lot of support as it legislated for more austerity in return for the bailout cash — it's about 15 percentage points behind the main opposition conservatives according to opinion polls.

Energy Minister George Stathakis said Monday's agreement will mean that there will be no net increase in austerity, as any tax increases from 2019 will be offset by reductions in other forms of taxation.

"We have not agreed specific measures," he told Skai TV. "But we agreed that whatever changes are made at one level, for example tax increases for some categories of Greeks, there will be equivalent measures to reduce taxation. ... Every measure that carries a tax burden of one euro will have a counter-measure that eases one euro in tax."

This has also been one of the demands of the International Monetary Fund and could help persuade it to contribute to the latest Greek bailout program, which was agreed on in July 2015. The IMF's involvement was envisioned in that bailout deal, Greece's third, and Dijsselbloem said Monday's agreement could help to get it on board financially.

Still, there are other potential hurdles to be cleared before the IMF does get involved. One key issue relates to Greece's debt profile over the coming decades. The IMF forecasts Greece's debt will, as things stand, swell to a staggering 275 percent by 2060 from around 180 percent now.

As a result, it's urging the Europeans to come up with a substantive package of debt relief measures. The eurozone countries, notably Germany, have ruled out an outright debt reduction but are open to other kinds of debt relief, such as extending Greece's repayment periods or capping the interest rates at relatively low levels. Debt relief discussions will recommence once agreement on the next batch of Greek reforms is concluded.

IMF spokesperson Gerry Rice said on Twitter that the Fund welcomed the progress made Monday but that more "will be needed to bridge differences on other important issues."

Despite that caution, German Finance Minister Wolfgang Schaeuble has seemingly no doubt that the IMF will get involved.

"I think it's very much a theoretical discussion," he said. "The IMF will take part."

Disagreement between the eurozone and the IMF over the sustainability of Greece's debts and the scale of austerity demanded of Athens was one of the main reasons why concerns over another bout of Greek jitters flared in markets in the past few weeks.

Greece has a payment hump in July with around 7 billion euros ($7.4 billion) due, and without the bailout cash it would face a potential exit from the euro — so-called Grexit, a scenario it has faced repeatedly over the past seven years.

"There is no need for disbursement in March, April or May," Dijsselbloem said. "I'm not saying we should use all that time ... but don't create deadlines where there are none."

By a variety of economic metrics, including growth and the budget, Greece is performing relatively well — certainly when compared with the last few years. Growth has returned not least because of a tourism boom partly linked to the turmoil gripping other Mediterranean getaways such as Tunisia and Turkey, while a tight control on costs has helped push the government finances into surplus once debt and interest payments are stripped out.

"It is evident that Greece has significantly over-performed its 2016 targets," said Pierre Moscovici, the top economy official at the European Commission, the EU's executive arm.

Because of its improved performance, Greece has borrowed less from its bailout fund than originally envisaged in the 2015 rescue, which provided for around 86 billion euros ($91 billion) in loans over a three-year period.

"We all feel a sense of urgency because of the key issue of confidence," Dijsselbloem said. "If we want economic growth to continue and start picking up, confidence is the key factor. That will be a strong motivator to do the work as soon as possible."

Confidence is fragile not least in a country that has experienced so much turmoil — and economic misery — over recent years.


Pylas contributed from London. David McHugh in Frankfurt, Germany, and Nicholas Paphitis in Athens, Greece, also contributed.