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1 Feb 2016
Greeces’ lenders to start bailout review today
FXStreet (Mumbai) - Negotiations with respect to review Greece’s bailout, which are due to begin today. The officials from the European Commission, European Central Bank, European Stability Mechanism and International Monetary Fund will likley hold talks with officials of the Greek government for about a week beginning today. only when the coalition manages to complete the review will they leave Athens. Greece’s Finance Minister Euclid Tsakalotos believes the review will be completed by the end of March or end of April.
While speaking at Davos on 22nd January 2016 ECB chief Draghi had expressed confidence that Greece has been able to make progress with respect to reforms, and fiscal consolidation. He however did mention his concerns about the high-level of non-performing loans in Greek banks and said they needed “a process by which these loans can be sold.” He is hopeful of an agreement soon. “The sooner it’s concluded, the sooner the Greek economy can go back to normal” Draghi noted.
Several issues on the agenda such as pension reform, fiscal measures, the new privatization fund and the sale of nonperforming loans are highly sensitive. In the past few months the lenders have had the opportunity to study and assess Greece government’s pension reform proposals. What remain to be seen whether Athens can now play its cards well given the differences that lenders have with respect to this issue.
The IMF will likely push for cuts of 15 percent to pensions. The coalition however will possibly not accept reductions to existing pensions. On the other hand Greece’s officials might be inclined towards cuts to higher pensions as they would want to complete the review. Also, Greece’s lenders may negate the proposal for a 1.5 percentage point rise in social security contributions, demanding a smaller increase.
The officials on both sides might find it diifficult to come to an agreement with respect to number of years needed for someone to qualify for a basic pension. The Greek government would want to set it at 15 years, while the lenders will likely want to push it higher to 20 years.
Whether or not Greece needs to implement more fiscal measures will also be discussed and debated upon. Athens will likley stick to the argument that given last year’s budget produced a 0.4 percent of GDP primary surplus, rather than the expected deficit there is no fiscal gap in the current year. The IMF may not likely support this argument and ask for more spending cuts in 2016, 2017 and 2018.
While speaking at Davos on 22nd January 2016 ECB chief Draghi had expressed confidence that Greece has been able to make progress with respect to reforms, and fiscal consolidation. He however did mention his concerns about the high-level of non-performing loans in Greek banks and said they needed “a process by which these loans can be sold.” He is hopeful of an agreement soon. “The sooner it’s concluded, the sooner the Greek economy can go back to normal” Draghi noted.
Several issues on the agenda such as pension reform, fiscal measures, the new privatization fund and the sale of nonperforming loans are highly sensitive. In the past few months the lenders have had the opportunity to study and assess Greece government’s pension reform proposals. What remain to be seen whether Athens can now play its cards well given the differences that lenders have with respect to this issue.
The IMF will likely push for cuts of 15 percent to pensions. The coalition however will possibly not accept reductions to existing pensions. On the other hand Greece’s officials might be inclined towards cuts to higher pensions as they would want to complete the review. Also, Greece’s lenders may negate the proposal for a 1.5 percentage point rise in social security contributions, demanding a smaller increase.
The officials on both sides might find it diifficult to come to an agreement with respect to number of years needed for someone to qualify for a basic pension. The Greek government would want to set it at 15 years, while the lenders will likely want to push it higher to 20 years.
Whether or not Greece needs to implement more fiscal measures will also be discussed and debated upon. Athens will likley stick to the argument that given last year’s budget produced a 0.4 percent of GDP primary surplus, rather than the expected deficit there is no fiscal gap in the current year. The IMF may not likely support this argument and ask for more spending cuts in 2016, 2017 and 2018.