Brussels, 05/05/2015 (Agence Europe) - Uncertainty about Greece forced the European Commission to revise down its macroeconomic forecasts, explained Economic and Monetary Affairs Commissioner Pierre Moscovici at a press conference on 5 May (see related article).
After a meeting later in the day with the Greek finance minister, Yanis Varoufakis, everyone agreed that the Eurogroup meeting on 11 May would be a new staging post rather than the crucial meeting as had been initially hoped.
The Commission has slashed its winter economic forecasts, with the figures unveiled on 5 May suggesting that Greece will see economic growth of 0.5% of GDP in 2015 and 2.9% in 2016, compared with the winter forecasts that suggested growth of 2.5% of GDP in 2015 and 3.6% in 2016. The primary surplus was expected to be 4.8% of GDP in 2015 and 5.2% in 2016 in the winter forecasts, but as long as the Greek government reaches agreement with the institutions, the primary surplus is now expected to be 2.1% in 2015 and 1.8% in 2016. “It goes without saying that all our projections are subject to a particularly high degree of uncertainty,” warned Pierre Moscovici.
Following the Eurogroup statement on 20 February, the Commission recognises that the target of a 3% of GDP primary budget surplus this year is not tenable. Given the amount of time wasted in discussions, the Greek government now has only six months to introduce the reforms that would lead to this surplus. The Financial Times says the IMF expects Greece to have a primary deficit to the tune of 1.5% of GDP in 2015, and this is reported to have driven IMF representative Poul Thomsen to bring up the question of reducing the Greek debt at a meeting in Riga a few days ago. “The IMF of course did not make such a comment,” said German finance minister Wolfgang Schäuble, adding it had been made clear that the Greek public purse was emptying. The FT says that Thomsen didn't talk about slashing the debt, but had warned that the easing of the primary surplus targets would require an easing of the debt in return. The idea of setting high targets was to achieve a reduction in the debt, but the current and previous Greek governments say that this budget straitjacket is acting as a brake on growth and thus eliminating the desired impact in terms of the ratio of debt as a proportion of GDP.
The question of Europe making a gesture on Greece's debt cannot be discussed until agreement has been reached on a complete reform programme that is coherent and detailed so that the Greek economy can go forward, explained Pierre Moscovici. If Greece does not fulfil its side of the bargain (a primary budget surplus in line with its commitments), Eurogroup will not be willing to budge on the matter.
Pierre Moscovici said that he thought there was the possibility of significant economic recovery in 2016 as long as the reforms were brought back on track in Greece. Bloomberg reports that Greek officials have underscored the lack of coordination between the 'institutions' (the European Commission, ECB and IMF) and the various red lines imposed on the country.
After a meeting with Greek finance minister Yanis Varoufakis at the latter's request, Pierre Moscovici tweeted that he hoped the Eurogroup meeting on 11 May would be “useful.” At a press conference, he hoped that meanwhile, Greece and the institutions would make good progress in their talks.
Speaking at Leuven University on 4 May, the president of the European Commission, Jean-Claude Juncker, said that it was up to Greece “to take major steps in our direction and we have to be ready to respond in an adequate way to these steps (that) they don't have the choice not to take.”
On Tuesday morning, Yanis Varoufakis was in Paris, where he met French finance minister Michel Sapin, who described the meeting as “important.” He added that the Greek government wanted to get a message across in recent days because this is a key moment and there was the capacity to achieve a good compromise. Sapin explained that there was no other solution and there had to be an agreement. If no agreement is reached by 11 May, it is hoped that the Eurogroup meeting will send a positive signal that would encourage the ECB to raise its cap on Greek sales of short-term debt, which would give Greece a breathing space for its cash-flow. (Elodie Lamer)