A meeting of finance ministers in Brussels on Monday ended with Greece and its lenders appearing closer to an agreement that would conclude the pending bailout review and clear the way for debt relief talks, but only in return for another key concession from Athens.
In its statement, the Eurogroup welcomed “the completion of a policy package, which should pave the way for a successful completion of the first review.” It recognized the 2 percent of gross domestic product in fiscal measures that were passed through Parliament on Sunday night and noted that Greece still has another 1 percent of GDP in fiscal interventions to pass, as well as to legislate the sale of nonperforming loans and move ahead with setting up a new privatization fund.
Regarding the outstanding package of contingent measures, worth 2 percent of GDP, that the creditors have demanded, Greece’s proposal for a mechanism that will make automatic cuts in public spending if Athens does not hit its primary surplus targets in the coming years appears to have been accepted. The International Monetary Fund and other creditors had preferred that the government should legislate specific measures now and keep them on hold until it was clear whether they were needed to cover shortfalls in 2017 and 2018.
Finance Minister Euclid Tsakalotos had argued that passing such measures was not compatible with the Greek Constitution, while government officials had raised doubts about whether MPs would support another large austerity package at this stage.
“We will not make the Greeks legislate specific measures up front,” said Eurogroup president Jeroen Dijsselbloem. “We will make them legislate the mechanism, so it’s clear what happens if the program goes off course.”
This was one of the reasons that Tsakalotos emerged from the Brussels meeting encouraged by what he had heard. “It was a very good Eurogroup for Greece and I think a very good Eurogroup for Europe,” he told reporters.
However, the proposal for the automatic mechanism sent by Athens indicated that apart from some welfare spending, no form of expenditure would be protected from automatic reductions. This includes pensions and public sector wages, even though the coalition had repeatedly indicated that it would like to ringfence them.
Tsakalotos was also encouraged by the fact that technical experts who advised the eurozone finance ministers will be instructed over the next few days to look at possible short-term, medium-term and long-term measures that can be taken to ease Greece’s debt burden. The aim is to have the recommendations ready by the next Eurogroup on May 24.
“It’s a great relief that we are talking about debt and a great relief that we are talking about specifics,” said Tsakalotos. “Not everything has been sorted out. But a lot of things have been sorted out and there is every expectation that the pieces of the jigsaw will be put in place by May 24.”
Dijsselbloem, however, stressed that the bailout review has to be completed before any debt relief proposals can be finalized. He also emphasized that Athens should not expect any measures that are agreed to make a significant impact in the short term.
“We will discuss when, if, under what conditions this could take place. This is the first discussion we will have on it. I don’t expect any definite conclusions,” said the Dutch finance minister. “We won’t do a debt cut. But one can always talk about maturities and interest. We will try to make a breakthrough on May 24,” he said.