Monday

24th Feb 2020

Lenders press Greece to adopt conditional laws

Greece and its international lenders will spend the coming days negotiating a set of policy measures that will be automatically triggered if Athens' budget surplus looks set to be lower than expected.

Those talks will take place in parallel with discussions over the last details of a first review of Greek reforms and, for the first time, a discussion on possible debt relief for Greece.

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“We came to the conclusion that the policy package should include a contingent package of additional measures that would be implemented only if necessary, to reach the primary surplus target for 2018,” said Eurogroup president Jeroen Dijsselbloem on Friday (22 April).

He added that if the “contingent package” is swiftly adopted, it could be finalised during an extra Eurogroup meeting on Thursday 28 April.

Dijsselbloem gave a press conference flanked by officials from Greece's lenders; the European Commission, the European Central Bank (ECB), the bailout fund European Stability Mechanism (ESM), and the International Monetary Fund (IMF).

“The contingency measures needs to be credible, legislated up front, automatic and be based on objective factors, which will trigger these contingent measures,” said Dijsselbloem.

Greece needs to have a primary budget surplus of 3.5 percent of its GDP by 2018. A primary budget surplus is achieved when a government has more revenue than expenditure if leaving out interest payments on debt.

On Thursday, the EU's statistical body Eurostat announced that Greece had a budget surplus of 0.7 percent in 2015, instead of an expected budget deficit of 0.25 percent.

The IMF and Germany pressed for contingency measures as extra insurance.

Klaus Regling, of the ESM, said the Eurostat figures were “encouraging”, but noted the future is uncertain.

“We have to admit that over a two-year horizon, uncertainty is high when you make forecasts and therefore I also believe ... that to identify contingencies as an extra insurance in case something happens unexpectedly, this is a useful way to go,” he said.

Details of the measures and how they will be triggered will have to be discussed the coming days. But the idea was easier proposed than executed.

In a separate room, Greek finance minister Euclid Tsakalotos told journalists that Greek law does not allow for conditional laws.

“You cannot say: you will do X, if the state of the world Y is in place in 2018, or 2019,” he said.

“It's not just Greek law, I was speaking to [French finance minister] Michel Sapin earlier, it's in French law as well. You cannot say I will vote for this if this happens when it happens. You just cannot do that in legal form.”

In general, all four creditors praised the Greek government for making “good progress”, including the IMF.

“Clearly the numbers that have been published by Eurostat are more positive than what we had thought, what all the institutions had thought, and even the authorities in Greece had figured,” said IMF chief Christine Lagarde. She added the IMF will scrutinise the Eurostat figures carefully for accuracy.

Talks on the contingency measures will take place in parallel to the negotiations on the first review of reforms Greece agreed to last summer. According to one EU source, there are only "small details" remaining for the review.

“They could have been concluded today,” the contact noted.

Debt relief

But instead, the review will be tied in with the contingency package, and a third debate: debt relief.

The IMF wants Europe to give Greece debt relief, but especially fiscal hawkish countries like Germany, Finland, and the Netherlands, are not very eager to do that.

Greek minister Tsakalotos said some form of debt relief was crucial to give a “vote of confidence in the Greek economy and the Greek polity”. He also needs something to bring home to his electorate, where print media went on strike Thursday and Friday against pension reforms.

“There are lots of things you can do, many of them having no impact on either German or Dutch or Finnish taxpayers, to change the conditions of the Greek debt and make it more affordable”, he said.

According to the ESM's Regling, options include maturity extension or grace periods.

“There is no deal until there is a deal on everything,” said Dijsselbloem, adding that the hoped-for Thursday meeting is not set in stone.

“If there is enough progress in the coming days, we will have that extra Eurogroup on Thursday. We'll see how far we can get. I don't want you to write tomorrow that there will be a deal on Thursday, that is not a given fact. Work needs to be done. If we can do it next week, we will,” he said.

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