The European Commission is planning to make a proposal to the Council of the EU to end Greece's excessive deficit procedure.
The Commissioner for Economic and Financial Affairs, Pierre Moscovici, hopes to make a proposal to this end when the European institution sends the member states its socio-economic policy recommendations on Wednesday 17 May. An initiative of this kind, which would send out a strong political signal a few days ahead of the Eurogroup meeting, has the support of Commission President Jean-Claude Juncker, but not currently that of the Commissioner for the Euro, Valdis Dombrovskis.
In August 2015, when the third Greek bailout plan was agreed upon, the Council adopted a decision (2015/1410) calling on Athens to bring its excessive deficit below 3% of GDP in 2017.
On Monday 24 April, the statistical office of the EU (Eurostat) announced that Greece had recorded a budgetary surplus of +0.7% of GDP in 2016, following a deficit of -5.9% in 2015 (see other article). However, Greek government debt rose further between 2015 and 2016, from 177.4% to 179.0% of GDP. Furthermore, Eurostat reported a primary budgetary surplus (not including servicing of the debt) of +4.2% of GDP in 2016, which is well beyond the targets laid down for that year (+0.5%) and 2017 (+1.75%). "This confirms the trends that we have been reporting for some time", announced Commission spokesperson Margaritis Schinas.
Optimism all round
The institutional creditors returned to Athens on Monday evening, to try to finalise the reforms that the Greek government has undertaken to apply in 2019 and 2020 to comply with its post-bailout plan budgetary trajectory. The Commission is optimistic that the talks will lead to an agreement at technical level by the end of the week.
The raft of measures to be adopted in parallel includes: - budgetary consolidation measures (reducing pensions by 1% of GDP from 2019 and increases in personal income tax worth 1% of GDP from 2020); - social measures and/or measures to boost growth, to exploit the margin above the primary budgetary objective required for 2018 (primary budgetary surplus of 3.5% of GDP) achieved by the previous measures (see EUROPE 11764).
In order to finalise the second monitoring mission of the third Greek plan, Athens and its creditors must agree on a primary budgetary surplus (not including servicing of the debt) to be maintained by Greece once it comes out of the bailout plan in mid-2018. According to the Commission, the level of of 3.5% of GDP should not go beyond three years after 2018, but Germany would like it to apply for at least five years from 2018.
Another agenda item, at the behest of the IMF: the adoption of medium-term Greek debt relief measures. At the moment, the issue is effectively being fought out between the Director of the IMF, Christine Lagarde, and the German finance minister, Wolfgang Schäuble, a senior official told us.
If a political agreement can be reached at Eurogroup on Monday 22 May, a decision could be made in mid-June to pay a further tranche of aid from the European Stability Mechanism in time to allow Greece to honour its financial commitments in July without running the negotiations too close to the German elections of September. (Original version in French by Mathieu Bion)