Stronger growth and lower interest rates the path to lower primary surplus targets, Regling says

The only way that a discussion on lowering primary surplus targets for Greece can begin is if the country has stronger growth and lower interest rates than those assumed in its debt sustainability analysis, the head of the European Stability Mechanism (ESM) Klaus Regling said on Friday.

“The only way I can see how one could really have a substantive discussion is if growth were to be higher than we assumed in our last debt sustainability analysis and interest rates are in the long run lower. But this is a debate that will only come later next year when we are well into the 2020 budget,” Regling said in response to questions.

Regling was speaking in Helsinki, where an informal meeting of the Eurogroup had been held earlier in the day.

Asked about the International Monetary Fund’s (IMF) position that the target for Greece (currently set at 3.5 pct of GDP) was too high, Regling noted that the IMF had repeated its “known view” and that this was not new.

“The new [Greek] government has confirmed that for 2019 and also when they put together a budget for 2020, the primary surplus target of 3.5 pct will be observed. And then the Greek government wants to have a discussion; we will see,” he added.

The ESM chief said he was positively disposed to the Greek government’s plan for an early repayment of the more expensive IMF loans, which was among the policy priorities presented by Greek Finance Minister Christos Staikouras to his Euro area colleagues on Friday.

“…there is a lot of sympathy for that – certainly from my side. As I said earlier, I welcome such an early prepayment for a very simple reason. It improves the debt sustainability of Greece…” Regling commented, noting that the ESM must go through its internal process to provide a waiver [allowing early repayment] that this takes roughly two months.

Regling also welcomed “the growth-friendly reforms that are very much at the top of the agenda of the new government, fostering strong sustainable growth.” A good growth trajectory was important, he added, noting that growth at the moment or the first half of this year, “was less than what we had assumed when Greece left the programme” and that it was important to “get back to the anticipated level.”

European Central Bank (ECB) board member Benoit Coeure welcomed the improvements in the Greek banking sector and the government’s commitment to build on the progress made since 2015, taking specific measures to reduce non-performing loans, reinforce electronic auctions and speed up the delivery of justice, especially in the implementation of the Katselis law.

Greece is expected to be officially discussed at the Eurogroup in December, after the completion of the next enhanced surveillance report.