Athens to ask for easier fiscal targets

Primary surplus should allow government to negotiate less stringent set of goals for years to come By Sotiris Nikas

Armed with the 2013 primary surplus – which according to Finance Minister Yannis Stournaras will create quite a stir when it is announced – the government is putting pressure on the eurozone to launch discussions regarding a new restructuring of the Greek debt before the European Parliament elections in May.

As soon as Eurostat officially announces the difference between Greece’s revenues and expenditure for last year, in the last 10 days of April, the Greeks will formally start discussions on the issue of lightening the country’s debt. The Finance Ministry is currently working behind the scenes to ensure that the eurozone does not postpone the start of those talks until after the May 25 elections.

Greece also intends to discuss the relaxation of the fiscal adjustment through a change in the targets set for future primary surpluses. Ministry officials say that the targets set in the bailout agreement are practically impossible to attain, as they provide for a primary surplus of 3 percent of gross domestic product in 2015 (up from 1.5 percent this year), and as much as 4.5 percent in 2016 – i.e. about 9 billion euros. That level should be maintained for the following four years so that the state debt goes down to 120 percent of GDP by 2020.

Taking into account that the eurozone will take some action to lighten Greece’s debt, ministry officials say it is an opportunity for the fiscal adjustment targets to change, too. Either way there is no scope for new tough fiscal measures in expenditure (salary or pension cuts) or in revenues (new taxes). Therefore the government says the debt restructuring must be combined with a new road map for fiscal adjustment, given also that Greece exceeded all expectations in 2013.

Before the negotiations on the debt can start, Greece must discuss with its creditors how the funding gap for 2014 and 2015 will be covered, as it adds up to an estimated 13 to 15 billion euros. The eurozone intends to issue a new loan to that amount, with Athens prepared to accept that as long as it does not come with any new fiscal measures attached. Otherwise the two sides will associate the new loan with the implementation of structural reforms.