The troika issued a statement on Wednesday night confirming the conclusion of a seven-month review of the Greek adjustment program in which the country’s lenders appeared broadly positive about Greece’s prospects but highlighted banks’ capital needs and this year’s surplus as two key areas that need to be watched closely.
“The mission and the authorities agreed that the economy is beginning to stabilize and is poised for a gradual resumption of growth, broadly in line with our previous projections,” the International Monetary Fund, the European Central Bank and the European Commission said in a statement issued some 30 hours after the Greek government had announced the conclusion of the review. “Prices are adjusting and inflation remains well below the euro area average.”
Without identifying a specific figure, the troika acknowledged that Greece had exceeded its primary surplus target for 2013 but added that this was partly achieved due to one-off measures that would not apply this year.
“Preliminary estimates suggest the 2013 primary balance target was met with a substantial margin,” said the troika. “While only a small portion of this overperformance will carry over into 2014, we believe that the 2014 fiscal targets will also be met, taking into account the measures being implemented and planned.”
The lenders’ statement also indicated that a solidarity tax on incomes introduced in 2011 as an emergency measure could be extended beyond this year to 2015 as well to help the government meet its target of producing a 3 percent of GDP surplus by then.
The troika further drew attention to the issue of banks’ capital needs, indicating that it remains skeptical about the 6.4-billion figure presented by the Bank of Greece earlier this month based on stress tests carried out by BlackRock.
“According to the assessment of the mission teams, there are upside risks to the capital needs estimates, in particular, if the authorities and banks do not urgently and efficiently address the high level of nonperforming loans,” Greece’s lenders said. “Swift recapitalization of banks will strengthen their balance sheets. The Bank of Greece should remain vigilant in its oversight of the banking system and proceed forcefully in requiring banks to quickly work out their large stock of problem assets.”
The troika also called for a swifter private sector debt resolution process and insisted that the Hellenic Financial Stability Fund should maintain its current capital buffer “to meet future adverse contingencies.”
Greece’s lenders appeared broadly satisfied in terms of the country’s efforts on structural reforms. “The authorities are making progress on structural reforms to improve the growth potential and flexibility of the Greek economy and help create a fairer and more supportive environment for investment, growth, and job creation.”
In addition, Greece’s lenders gave an indication of the liberalization measures, as recommended by the Organization for Economic Cooperation and Development (OECD), that the coalition government has agreed to adopt.
“They are committed to implementing a very large majority of product market reforms identified by the recent OECD study in the areas of food processing, tourism, building materials, and retail; to taking concrete measures to liberalize the transport and rental markets and open up closed professions; and to reducing social security contribution rates and nuisance taxes,” the statement said.
Athens has so far remained silent on this aspect of its agreement with the troika.