In the fall of 2014, Greece was a step away from leaving behind the period of European bailout programs. A year-and-a-half later, however, it finds itself entangled in a third program, agreed in the summer of 2015. The country has to take another strong dose of austerity, based largely on hikes in taxes and social security contributions, as international lenders are looking to get back a good deal of their loans while accepting the government’s policy mix. With Greece’s liquidity position getting tighter, the government has no option but to implement one of the reforms legislated at the end last year.
In a bid to fend off criticism that the third bailout was too harsh and unwarranted, government officials used to point at fiscal targets that were much lower than in the second bailout plan. Indeed, the primary budget balance target under the third MoU was set at minus 0.25 percent of GDP in 2015, that is a small deficit, and then a surplus of 0.5 percent in 2016, 1.75 percent in 2017 and 3.5 percent in 2018. Officials linked the lower fiscal targets to a smaller dose of austerity to score some political gains but reality turned out to be quite different.
Whereas the country could have exited the second European bailout program by committing to additional restrictive measures equal to about 1.5 billion euros at end 2014 or early 2015, according to pundits, it is now being asked to take even more austerity measures to meet the lower targets. The negotiated package was enriched recently by additional precautionary measures equal to 2 percent of GDP to bridge the differences between the EU and the IMF on the Greek program. The precautionary measures may or may not be implemented, depending on fiscal performance.
Of course, negotiations between the government and the lenders on the fiscal measures and reforms to conclude the first review continue with an eye on clinching a deal next week or in May. At the same time, the government’s cash deposits are dropping, according to calculations. The central government posted a cash surplus of 524 million euros at the end of the first quarter compared to a deficit of 918 million a year earlier, according to the Bank of Greece. It is reminded that the central government is a subset of the general government, usually accounting for half of expenditures.
At the end of 2015, Greece’s deposits had risen to 1.7 billion euros from 1.16 billion at the end of September 2015. The country has not received new loans from the ESM from the start of 2016 until mid-April but it has paid more than 1.45 billion for IMF and bond holdout redemptions during the same period, according to Barclays. So, the state’s cash deposits may be around 800 million euros heading into April 30, when Greece has to pay 460 million euros to the IMF. The next two significant outflows are 750 million euros to the IMF in June and 2.3 billion to the ECB in July. As usual, the state can boost its reserves by running arrears to the private sector to avoid financing stress until July but this practice is harmful to the economy. State arrears reached 5.4 billion euros at the end of February from 4.8 billion at end-2015 and 3 billion at end-2014.
It is therefore an opportunity for Greece to implement legislation voted in December 2015 that calls for all bank accounts held by entities of the general government, estimated at more than 12,000, to merge into a single treasury account at the Bank of Greece that would be administered by the PDMA (Public Debt Management Agency).
The state has already borrowed about 10 billion from such entities via repurchase agreements (repos) since last year. The total balance of all these bank accounts is estimated at around 3 billion euros. Some 1 billion belongs to central government entities and it is easier to get hold of. Needless to say, there is a lot of resistance from the entities, which partly explains why this reform has not being implemented.
All-in-all, Greece’s tighter liquidity position is an opportunity to speed up the creation of a single treasury account at the Bank of Greece. The latter would make the management of bank deposits held by public entities more efficient and relieve the state of financing stress ahead of some significant repayments to the IMF and the ECB in June and July regardless of ESM disbursements.
[Kathimerini English Edition]