In a bid to restore some calm and restraint after a particularly tense week in negotiations between Greece and its foreign creditors that were reminiscent of the summer of 2015, European Union Commissioner for the Euro Valdis Dombrovskis speaks to Kathimerini about where things stand now.
The European Commission vice president says that comments by Greek Prime Minister Alexis Tsipras created a situation that was “unnecessary and unhelpful” but adds that he believes the rift between the lenders is “certainly bridgeable” and Greece’s bailout review can be wrapped up in the next few months.
We seem to have reached a dead end regarding the negotiations for the completion of the second review, with the International Monetary Fund (IMF) on one side and Germany on the other. How and when do you see this disagreement being resolved?
With a constructive attitude from all sides, we believe that we could reach a staff level agreement (SLA) during the next months. I would certainly not describe the situation as a dead end. Sure, things are more turbulent than few weeks ago and indeed this week’s mission in Athens could have been where an SLA was reached.
What has complicated things to this extent is the unilateral announcement of the Greek government on additional measures for 2016 and 2017, though we can understand the underlying concerns and aims which the Greek government wants to address with this. In the memorandum of understanding (MoU) it is very clear that there needs to be a discussion and an agreement with the program partners on measures that have a fiscal impact if Greece decides to implement them. Unfortunately these consultations had not taken place and we see that there has been a certain reaction from the program partners. It’s clearly prescribed in the program how to handle situations of over- and under-performance of fiscal targets. This assessment is based on outturn data in April and not on forecasts.
The preliminary assessment of the institutions says that the proposed measures raise significant concerns on both the process and substance as regards to MoU commitments. But the assessment also acknowledges, for example, an extremely difficult situation in the four Aegean islands worst affected by the migrant crisis. So institutions are ready to work together with the Greek authorities to address these challenges but it has to be done in the way that it is foreseen in MoU. Members of the Eurogroup will now need to discuss this assessment and take their position. This discussion will take place as early as next week but I do not want to prejudge its outcome now right now. What I wish to emphasize is that this situation, although unnecessary and unhelpful, can be resolved if all sides show good will and cooperation.
Nevertheless, if we look at the substance as regards fiscal goals, our assessment is that Greece is on track to meet its fiscal goals of a primary surplus of 0.5 percent this year and 1.75 percent over the next years, and work is continuing to identify measures for 2018, but also that the shortfall is not so big so it’s certainly bridgeable. One can say broadly speaking that Greece is on track as regards fiscal performance… and while there are a number of issues that still need to be discussed, all in all the two sides are not so far apart.
Do you think that Greek Prime Minister Alexis Tsipras put the talks at risk of collapsing?
Of course it’s important that all sides stick to their commitments, including on how to introduce additional measures. This means what Greece can do if it over-performs on fiscal targets and especially what can be done to strengthen social protection, but there is a certain way of doing things which unfortunately was not followed and has created some turbulence right now.
The IMF believes that Greece needs to legislate measures that would be implemented after 2018 if it misses budget targets. What do you think of that?
I think that since we were able to find a solution for 2018, we will find one for the coming years. It’s worth noting that if you compare the IMF micro-economic and primary balance forecast for 2015- 2016 they have been quite pessimistic and the outcome was substantially better. It may well be that when we see this tendency of a primary surplus being confirmed this year and Greece meeting or even over-performing in the primary surplus, this might bring an adjustment of the IMF assessment and reduce the size of it.
That would not take place until April though. Can we continue to be in a stalemate until then?
There is no need for so much pessimism or such delay. Everything that we have been discussing is well known and there have been different assessments for quite a long time now. We were able to find a solution during the first review and we can find a solution in the second review. If all sides are constructive in their efforts we could still have the second review by early 2017.
Can we conclude the review without full IMF participation with the same formula used in the first review?
As the European Commission we are working based on the European Stability Mechanism treaty, which means that we are working with European Central Bank and whenever possible in close cooperation with IMF.
Have member states expressed concern over the IMF’s non-participation in the program?
This debate has been going on for quite some time. What I’m trying to say is that the differences between all sides – Greece, the EU and the IMF – may be smaller than what they appear from today’s headlines and there is a way to bridge the difference.
This time around the IMF doesn’t seem to disagree just with the primary surplus targets, but it has also been suggested that there will be a need for further measures on pension reform and widening of the taxation base even if we agree on a low primary surplus.
To calm things down, let me say that the differences are not that big. There have been too many headlines and developments. A few weeks ago it looked like we could have a SLA during this week’s mission. Now we see some new announcements by the Greek government and some discussions with IMF. This is nothing you cannot bridge if all sides act constructively.
On pension reform, Greece has already undertaken quite substantial pension reform that ensures quite a substantial fiscal effect. On the taxation base, it also depends on how you assess it if you look at the labor assessment we use – tax wage indicator, income tax and social security contributions.
When do you think Greece will be able to access the markets?
Common practice is that program countries start tapping markets before the program ends. We couldn’t say what the exact timing would be right now, as this is something for the Greek authorities to decide. Normally this should begin in the program timeframe. As you may remember, Greece was taping the markets in 2014 with the assumption that the program would end in late 2014 or the beginning of 2015. Political developments unfortunately led elsewhere. The completion of the second review will be an important step to show that the program is on track.
As prime minister in Latvia you had to implement a very hard program of reforms to return your country to growth. What do you think is the problem with the Greek program and our difficulty as a country to return to growth?
There are no one-size-fits-all solutions. We cannot copy-paste the Latvia experience to Greece. Latvia’s program was frontloaded. We implemented a bulk of measures – fiscal and structural reforms – already during the crisis in 2008-2009, which allowed Latvia to regain financial stability and return to economic growth. In Greece we saw a different tendency, one to postpone measures based on the argument that measures would be detrimental to growth – it’s a Keynesian argument and it’s true. But by postponing the measures and reforms, one postpones the return to financial stability. In a sense you are getting deeper into crisis without quick restoration of financial stability. Now it’s very important to get the program on track because if it’s on track this is a reassurance of financial stability. With financial stability Greece will be returning to growth – we can expect high growth next year – and recovery will be relatively swift as Greece’s economy is below potential. But it needs to be clear that there is financial stability.