Brussels, 03/06/2014 (Agence Europe) - The troika of lenders to Greece (European Central Bank, European Commission and International Monetary Fund) are expected in Athens on Tuesday 4 June for a new round of talks, likely to focus on reforms in the civil service, recapitalisation of Greek banks and privatisation, along with the budget gaps needing to be filled to achieve the targets for 2015 and 2016. The European Commission and ECB say the gaps are expected to be to the order of 1.7% and 2.1% respectively in 2015 and 2016.
At stake is payment of the remaining €3.3 billion of a €7.5 billion instalment of aid, to which Eurogroup political leaders gave the go-ahead last month. The disbursement of the €3.3 billion is conditional upon the implementation of specific steps, explained Klaus Regling, EFSF (European Financial Stability Fund) Director General (see EUROPE 10845).
IMF releases aid for Greece. Welcoming determined implementation of the target despite the deep recession and rising unemployment, the IMF has given the go-ahead for the disbursement of €1.74 billion of aid for the country. Like the Greek government, the IMF expects to see the green shoots of economic recovery in 2014, although the OECD is expecting the economy to continue to shrink next year.
“Greece is well underway to complete its ambitious fiscal adjustment plan, and is on track to meet its 2013 fiscal targets”, said IMF Director General Christine Lagarde, explaining that the priority now must be clamping down on tax evasion. She said work must also focus on reform of the labour market, reform of the market for goods and services, and improving the business environment.
On the bank recapitalisation process that is under way, the IMF says: “The authorities must reinforce the governance framework and return to the private sector the stakes in banks that are under the government's control at an early time”. On Monday, Alpha Bank announced that it has managed to raise the private funding needed to no longer require being run by the state. Eurobank has given up trying, while the country's third and fourth biggest banks, Piraeus and BNG, are waiting to learn the outcome of their latest bond issue.
The IMF says that Greek public debt will remain high over the next decade. Under an agreement reached at the end of last year between Athens and its lenders, Greek public debt must be reduced to 124% of GDP in 2020 and then substantially below 110% in 2022. To this end, the Eurogroup has pledged to take the necessary measures to reduce the debt burden if Greece achieves its targets. Lagarde commented on this: “The assurances from Greece's European partners that they will consider further measures and assistance, if necessary, to reduce debt to substantially below 110 percent of GDP by 2022, conditional on Greece's full implementation of all conditions contained in the programme, are welcome.” Lagarde dismissed Greek hopes of a reduction in VAT on restaurants and cafés to boost business, saying: “Pressures to reduce taxes using the space from any fiscal over-performance should be resisted.”
In its assessment of Greece, the IMF is reported to have examined three reports on “incorrect macroeconomic assumptions”, explains the Greek press. The Kathimerini newspaper talks about restructuring of the Greek debt, which the IMF says was done too late. In a report published in May, the Bruegel think tank came to similar conclusions, saying that the delays had meant public lenders having to take the place of private lenders (see EUROPE 10848). Bruegel says that there will, in the end, be recognition of the fact that Greece is unable to repay its debt, which will have repercussions on taxpayers in the lending nations. The IMF is said to have highlighted erroneous economic forecasts, describing 2011 as a “lost year.” (EL/transl.fl)