January promises to be a tough month for negotiations between Athens and Greece’s creditors, but it is likely to see the unfreezing of short-term measures to ease the country’s debt burden that were suspended last month after the government’s unilateral decision to offer handouts to pensioners.
The Euro Working Group is scheduled to convene on January 12, when the creditors’ representatives will bring senior eurozone finance ministry officials up to date on the state of negotiations with Athens.
With near-zero progress recorded in December, the talks have failed to advance since the last time the creditors were in the Greek capital.
On the one hand, there is some distance between the lenders and Athens as regards the fiscal gap that has emerged for 2018 and how it will be covered (i.e. where the government will decide to make further cuts), and there has been no agreement on the labor relations front, due to the lack of progress on collective labor contracts.
On the other hand, the divide between the eurozone and the International Monetary Fund on the targets for the primary budget surpluses has not been narrowed, with the Fund insisting that its participation in the bailout program depends on Athens taking measures for the period after the end of the program (2019 and 2020) in order to match the high primary surplus of 3.5 percent of gross domestic product that the eurozone is demanding.
The pessimists in Brussels say the necessary progress on issues such as the reduction of the tax-free ceiling (the IMF argues that taxes burden only a portion of Greek taxpayers) and the further reform in the tax system will not have been achieved by the end of January for the creditors to return to Athens.
As negotiations have stagnated, the Euro Working Group will attempt to see the creditors back in Athens for talks to continue and for some progress to be presented at the January 26 Eurogroup meeting. What will likely happen is that the European Stability Mechanism will reinstate the short-term debt-easing measures before the Eurogroup meeting.