Bailout review process may be delayed

15 January 2016
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It appears that the representatives of Greece’s creditors may not arrive in Athens on Monday after all as they have just requested additional data on the 2016 state budget, making it rather unlikely that Finance Minister Euclid Tsakalotos’s statement this week that the review will be concluded “within four weeks,” or by the end of February at the latest, will prove correct.

The government’s objective is to see the negotiations through quickly. However, the signs from the creditors are that it will be very difficult for this first formal review of the bailout program to be completed anytime soon. The first big issue is the social security reform and the second, which is potentially more problematic, is the coverage of the fiscal gap with new measures.

The fiscal gap is a major bone of contention for Athens and its creditors, as the government expects the budget to perform better than officially forecast, leading to a small primary surplus from 2015, while the institutions believe there is a gap that ought to be plugged with new measures during the course of this year.

The European authorities have calculated the fiscal gap for this year at around 900 million euros, while the International Monetary Fund puts it at 1.8 billion, or 1 percent of gross domestic product.

The Finance Ministry foresees a 1.9-billion-euro surplus in last year’s revenues, with tax revenues alone beating their target by 700 million, according to ministry officials. They stress that most of the extra revenues have come by way of permanent measures such as the value-added tax, meaning that they will also have a positive impact on the budgets of the following years, starting from 2016. In this context the ministry expects 2015 to have ended with a small primary surplus, at around 0.25 percent of GDP, which would also improve the picture of the following budgets.

“If the creditors also acknowledge that the fiscal gap is smaller than what was anticipated, then no additional fiscal measures will be required,” said a ministry source, showing the strategy of the Greek side in the talks. Should the two sides agree on that, then it will be much easier to agree on the updated midterm fiscal program for 2017 and 2018.

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