Greece is applying reforms to meet bailout pledges, but extra contingency measures demanded by the International Monetary Fund (IMF) are impossible to legislate, the country’s finance minister said in a leaked letter to eurozone finance ministers before a Eurogroup gathering Monday. The eurozone’s 19 finance ministers will meet in Brussels to discuss Greece’s reform program and a new set of contingency measures that Athens has been asked to adopt to ensure it can achieve agreed fiscal targets in 2018.
A successful conclusion of the bailout review would unlock bailout funds under a financial aid program, agreed by Greece and eurozone countries in July, and pave the way for debt relief talks.
While Greece’s leftist-led government has mostly reached agreement with its official lenders on a 5.4 billion euro ($6.2 billion) package of measures to hit a 3.5 percent primary budget surplus target in 2018, the IMF believes this will be tough to achieve. The fund says the package would suffice in the event the 2018 primary surplus target is cut to 1.5 percent, but that extra savings are needed to attain the 3.5 percent target, pushing for contingency measures worth 3.6 billion euros.
“Any package above 5.4 billion euros is doomed to be seen by Greek citizens and financial analysts ... as socially and economically counterproductive,” Finance Minister Euclid Tsakalotos said in the letter. “There is no way such a package can be passed by the current government, or by any democratic government that I can imagine.”
The finance ministry had no comment.
Tsakalotos said the 2-percentage-point difference on the primary surplus target was very large, rendering the IMF’s demands for contingency measures of 2.0 percent of gross domestic product “quite problematic.” Noting there is no constitutional way to pass contingency measures in Greece, he said the government would have to legislate steps and promise to annul them in the event they proved unnecessary.
“Can you imagine going to parliament and, instead of an expected package of 5.4 billion euros, [try to pass] one of 9.0 billion euros?” Tsakalotos asked in the letter.
Instead, Athens has offered an automatic mechanism of spending cuts across ministries should the 2018 target begin looking unattainable, to ensure it will be able to meet the agreed fiscal goal set for 2018. “I believe that such a mechanism, coupled with the reforms package, is more than adequate to close the first bailout review,” Tsakalotos said.