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The Weekend Neos Kosmos : 16 April 2016
2 THE WEEKEND NEOS KOSMOS | SATURDAY 16 APRIL 2016 DIGITAL.NEOSKOSMOS.COM New memorandum draft leaks Pension and tax reforms, privatisations and loan policy among the thorny issues NIKOS FOTAKIS In what has been a marathon of negotiations, talks between Greece and its international lenders (European Commission, European Central Bank, European Stability Mechanism and the International Monetary Fund) resulted in a cliffhanger, as talks paused late on Tuesday without the two sides reaching an agreement over the country's bailout review. The lenders are set to return to Greece on 18 April, immediately after the IMF spring meetings in Washington (which representatives of both parties will attend, informally resuming talks there), to continue negotiations before a scheduled meeting of eurozone finance ministers on 22 April. "The Greek government and the four institutions agreed there was progress," has been the official line, as stated by Greek Finance Minister Euclid Tsakalotos. What have been the debated issues that prevented an agreement? The two sides didn't seem to reach a deal on pension reforms and regulating non-performing loans. Both sides said that progress had been made but there were still gaps to bridge. The Greek side tried to dismiss concerns, with officials talking of "small details on the fiscal side of things" that need to be settled. Creditors insist on a Greek commitment to budget savings, centered on overhauls of pensions and income taxes, worth about €5.4 billion, or 3 per cent of Greece's gross domestic product. Greece has long been reluctant to implement such unpopular measures, but lenders also seem to disagree. The review has dragged on for months mainly due to a disagreement among the lenders over Greece's projected fiscal shortfall by 2018 - initially seen at three per cent by the EU, one per cent by Greece and 4.5 per cent by the IMF. During the past week, an agreement has been reached, setting the baseline at three per cent, although the EU and the IMF are still at odds on whether Athens could achieve a 3.5 per cent primary surplus (i.e. budget balance before debt service payments) in 2018. The IMF, which will decide whether to co-finance Greece's third bailout after the review and in light of how much debt relief Greece receives, believes Athens will miss its 2018 surplus target and settle at 1.5 per cent, even if it implements measures worth three per cent of GDP. EU institutions, on the other hand, insist that the target is feasible. According to various sources, most issues seem to remain open at the moment. Where exactly is Greece now, in terms of deficit and projected surplus? Current review projections show a primary deficit of 0.5 per cent this year for Greece, a surplus of 0.25 per cent in 2017 and a primary surplus of just 1.5 per cent in 2018. According to the IMF, these figures reflect reform fatigue after five years of adjustments and social pressures in Greece due to high unemployment, which rose to 24.4 per cent in January. Projections also expect an average rate of economic growth of 1.25 per cent for the long term, lower than its previous forecast. Was the issue of debt relief discussed? The IMF has long been pressing on the issue, and during this round of talks insisted that Greece's European partners grant Athens substantial debt relief, the size of which is connected to that of the bailout loan. "Despite generous concessional official financing and further reform plans ... debt dynamics are projected to remain highly unsustainable," the IMF stated in a draft Memorandum of Financial and Economic Policies (MFEP), compiled during the review. "To restore debt sustainability, in addition to our reform efforts, decisive action by our European partners to grant further official debt relief will be essential." This is a win for the Greek government, which has been focusing on a possible debt relief that would allow for it to be deemed viable. On the other hand, Greece has aimed to exclude the IMF from the program which is not a possibility now; the IMF's inclusion is made clear in the papers. Wait. So now there is a new memorandum? There has been a leak of two documents, that seem to outline a new set of measures that the Greek government should implement; one of them is a draft version of a technical ‘Memorandum of Understanding’ penned by the EU, that examines the obligatory structural reforms and their deadlines. Both texts offer specifics on the policies agreed by Greece and its lenders last summer, so they are not a ‘fourth memorandum’ so much, rather a new version of the third one. The draft of the agreement seems to suggest serious concessions on behalf of the Greek government, as it covers the vast majority of measures that were left out of the previous bailouts. According to it, the conditions for receiving the loan see to a reduction of the deficit of 2016, equivalent to 0.75 per cent of Greece's GDP, through revenue generated by the upcoming measures. It also sets other "ambitious, yet realistic" targets, which could be met by the imposition of measures that would save the equivalent of 2.5 per cent of GDP by 2018, such as reforms to the Greek pension and tax systems, as well as the wages of public sector workers. A special emphasis is given on revenue collection with the establishment of an independent revenue agen- Greek Minister of Finance Euclid Tsakalotos. PHOTO: BLOOMBERG.
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