Primary Surplus Targets Hinder Greek Bailout Program Review

tsakalotos-2Greece and creditors have not agreed yet on primary surplus targets beyond the bailout program, thereby making the completion of the second program review more difficult than expected.

The primary surpluses of 3.5% beyond 2018, when the program ends, constitute a target that would require further fiscal measures. The Greek government, however, has announced that is not willing to implement more austerity measures.

European creditors — the European Stability Mechanism, European Central Bank and European Commission — and the International Monetary Fund have not agreed yet on the primary surplus targets beyond 2018.

The Fund insists that under current circumstances, Greece will not achieve a primary surplus of 3.5% of GDP in GDP and the only way to achieve that is to implement additional measures worth 4.5 billion euros.

European creditors consider that the cost of the additional measures needed to reach 3.5% of GDP would be in the range of 360 to 720 million euros.

The Europe-IMF differences have not been bridged yet and the Fund is reluctant to participate financially in Greece’s bailout program, despite Europe’s insistence to participate.

Creditors’ teams will return to Athens on Monday to continue negotiations on the program evaluation. There are several issues pending to complete the evaluation that other than fiscal targets include labor law reforms and the new privatization fund.