Brussels, 03/05/2016 (Agence Europe) - On Tuesday 3 May, the Commissioner for Economic and Financial affairs, Pierre Moscovici, reiterated his firm belief that an agreement between Athens and its institutional creditors on conditional prior measures was “possible and necessary”.
“There is no reason for a re-occurrence of a crisis scenario on the Greek programme as the situation regarding joint work, results and reforms underway is so different”, Moscovici said on the sidelines of his presentation to the press of the spring economic forecasts of the European Commission (see other article).
Negotiations between Athens and its creditors, which are continuing remotely at technical level, have made enough progress for a Eurogroup to have been convened for Monday 9 May. However, the talks are still stumbling over the contingency measures equivalent to 2% of GDP that Greece must set in place in advance, but apply only if it deviates from its budgetary trajectory towards a primary budgetary surplus (not including servicing the debt) of 3.5% of GDP in 2018 (see EUROPE 11543).
Stressing that is impossible to legislate conditionally, the Greeks are arguing that these measures, which will be unpopular by definition, are too specific and have suggested instead creating a budgetary mechanism with an equivalent economic effect. This mechanism “would have to be legislative and automatic”, Moscovici stressed.
An agreement on this issue would pave the way for talks on a further rescheduling of the Greek debt, which Athens is pushing for in order to sugar the pill of pension and tax reforms and further budgetary cuts.
Moscovici added that although the Commission is predicting “slight negative growth” in Greece in 2016 (-0.2% of GDP), the country will come out of recession in the second quarter due to an upturn in confidence and the positive effects of the structural reforms. In 2017, if it continues the way it is going, Greece will see a new growth dynamic of 2.7% of GDP.
On the budgetary side, the Greek deficit is expected to fall to 3.1% of GDP this year, and then to 1.8% in 2017. The Commission lists downside risks of spending from the refugee crisis and delays in the implementation of reforms with a budgetary impact. The upside risks include revenue buoyancy in light of the strong revenue collection. Greek government debt is expected to peak at 182.8% of GDP in 2016, from 176.9% in 2015, due to the delays in the settlement of arrears and disbursements from the bailout plan initially scheduled for 2015. As regards unemployment, this is set to stabilise at a level a shade below 25% of the active population, before starting to fall in 2017, supported by a return to growth.
On Tuesday, the President of the European Council, Donald Tusk, urged the Eurozone finance ministers to “redouble their efforts” to seal a deal between Athens and its creditors in the framework of the first monitoring mission of the third Greek bailout plan. (Original version in French by Mathieu Bion and Elodie Lamer with Emmanuel Hagry)