Greek FinMin Letter to Creditors Leaked to the Press



A letter from Greek Finance Minister Euclid Tsakalotos to creditors reaffirming Athens’ commitment to the bailout program obligations has been leaked to the press.

Greece’s lenders had asked from Tsakalotos to send a letter of commitment to reassure that the Greek government will not proceed with any kind of fiscal measures without consulting with them first. The issue is the result of the Greek government’s unilateral decision to give a Christmas bonus to low-income pensioners and suspend for one year VAT increase for certain Aegean islands.

The Greek government’s move annoyed creditors to the point that they temporarily froze debt relief measures that were decided in the December 5 meeting of euro zone finance ministers.

Athens had asked creditors for clarifications regarding the content of the letter. The letter became a controversial issue as the government refused to publicize its content. Opposition parties accused the SYRIZA-ANEL coalition for avoiding publication of the letter’s content because it might include further binding measures.

The letter leaked to the press on Tuesday

“As regards the pension measure, please note that both the Prime Minister [Alexis Tsipras] and myself have made it publicly clear, and will continue to do so, that this is a one-off payment that is not intended to become a permanent feature of the recently enacted pension reform,” Tsakalotos wrote, adding that the temporary suspension of the VAT hike for islands hit by the migration crisis was limited to 2017 and was fully funded in the 2017 budget.

“The Greek authorities remain fully committed to pursue the agreed fiscal path that is based on primary surplus targets of 0.5, 1.75 and 3.5 percent of GDP in 2016, 2017 and 2018 respectively,” Tsakalotos wrote.

The minister wrote that Greek authorities vow to activate the contingency fiscal mechanism, as agreed in the first review, in case outturn data indicated that the agreed targets have not been met.

“In the event that the budgetary outturn for 2016 does not meet the agreed target, which we consider extremely unlikely, the Greek authorities commit to undertake compensatory measures in the area of pension expenditures, to make up the difference between the outcome and the fiscal target for 2016.” the letter says.

“I hope that these clarifications reassure the Eurogroup on our full commitment to remain compliant with our obligations under the MoU, both as regards the substance as well as the process of cooperation with our partners,” Tsakalotos concluded.

See full letter below:

Dear Mr. President,
Dear Managing Director,

In response to the institutions’ preliminary assessment of the measures on pensions and VAT which were recently legislated and implemented by the Greek authorities and the views expressed at the extraordinary EWG teleconference on 20 December, I would like to clarify the following.

As regards the pension measure, please note that both the Prime Minister and myself have made it publicly clear, and will continue to do so, that this is a one-off payment that is not intended to become a permanent feature of the recently enacted pension reform. As regards the temporary suspension of the VAT for selected Aegean islands, the measure is limited to 2017 only and is fully funded in the 2017 budget.

The Greek authorities remain fully committed to pursue the agreed fiscal path that is based on primary surplus targets of 0.5, 1.75 and 3.5 percent of GDP in 2016, 2017 and 2018 respectively. The Greek authorities will activate the contingency fiscal mechanism, put in place in the context of the first review, as foreseen in Law 4389/16, in case outturn data validated by Eurostat shows that those agreed targets were not met. In particular, in the event that the budgetary outturn for 2016 does not meet the agreed target, which we consider extremely unlikely, the Greek authorities commit to undertake compensatory measures in the area of pension expenditures, to make up the difference between the outcome and the fiscal target for 2016.

On process, I recognize that measures with fiscal implications need to be discussed and agreed with the institutions in line with our MoU commitments. In particular, in case of permanent fiscal over-performance vis-à-vis the programme targets as confirmed by the annual budgetary outturns validated by Eurostat, the Greek authorities will agree with the institutions, in the context of the reviews, on the use of the available fiscal space. We recognize that the available fiscal space may be used on targeted measures to strengthen social protection (especially the Social Solidarity Income Programme) and/or to reduce tax burdens subject to MoU commitments. Otherwise, we will use the over-performance to build cash buffers and/or clear arrears.

The Greek authorities fully recognize that the Eurogroup statements of 25 May and 5 December are premised on continuous adherence to the MoU commitments.

I hope that these clarifications reassure the Eurogroup on our full commitment to remain compliant with our obligations under the MoU, both as regards the substance as well as the process of cooperation with our partners.

Yours faithfully

Euclid Tsakalotos
Minister of Finance