Bid to restart bailout talks as QE, IMF fate unclear

9 January 2017
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With a meeting of eurozone Finance Ministry officials scheduled for Thursday, Greek and European officials aim to unfreeze stalled bailout negotiations even though key decisions vis-a-vis Greece’s inclusion in the European Central Bank’s quantitative easing program and the International Monetary Fund’s participation in Greece’s third bailout appear far from imminent.

The goal of Thursday’s Euro Working Group is to assess the progress achieved by Greek authorities in implementing economic reforms and to determine when representatives of the country’s creditors can return to Athens to resume talks. Some officials in Brussels, however, reckon that not enough progress will have been achieved by the end of this month to warrant the return to Athens of foreign auditors.

Apart from Greece’s slow progress in implementing agreed-to reforms, another key problem is a rift between European officials on the one hand and the IMF on the other regarding the extent of austerity that should be imposed in Greece and the type and timing of debt relief that should be offered.

EU and IMF officials continue to disagree on the fiscal outlook for Greece over the next three years. Also the Washington-based Fund wants Athens to reduce the tax-free threshold, arguing that the tax base is too narrow while pushing for further reform of the dysfunctional pension system.

Meanwhile sources at the ECB have indicated that the window for Greece’s potential inclusion in the bank’s QE scheme is disappearing as bailout talks remain stalled and attention will soon shift from Greece to the Netherlands, which is holding general elections on March 15.

Prime Minister Alexis Tsipras has insisted that bailout talks are set to resume and that Greece has both QE and debt relief to look forward to. But if that narrative starts unraveling, the prospect of snap polls will loom large again. Although government officials have rebuffed reports that plans are afoot for early elections, Tsipras’s recent handouts to pensioners and visits across the country indicate that he has domestic politics in mind.

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