BUSINESS

Athens faces possible sanctions for reducing primary surplus target

EIRINI CHRYSOLORA

TAGS: Finance

Greece may face sanctions from its eurozone creditors that could entail holding back the return of central banks’ earnings from Greek bonds, due to plans announced last Tuesday by Prime Minister Alexis Tsipras for reducing the primary budget surplus target from 3.5 to 2.5 percent of gross domestic product, Bloomberg reported on Friday.

Despite the certainty expressed by Tsipras that Greece’s eurozone peers would not refuse a target reduction, as Athens would put 5.5 billion euros of the country’s cash buffer into a special account as a guarantee, sources in Berlin told the international news agency that he was mistaken in his optimism.

Citing sources close to the discussions in Germany, Bloomberg said that Greece’s creditors “are open to sanctioning the country for a potential breach of debt obligations” over the reduction of the primary surplus target from the level agreed for the years up to 2022. “While the impact of the new fiscal targets still needs to be fully assessed, creditors are anticipating sanctioning Greece when the next debt decision is due in the fall,” the report said, citing the same sources.

“Possible sanctions could include withholding Greece’s share of European Central Bank bond profits and not reimbursing the annual penalty the country pays on some loans,” one of the agency’s sources said.

Meanwhile, Finance Minister Euclid Tsakalotos has traveled to Berlin on Wednesday, a day after the prime minister’s announcements. Sources have suggested that Tsakalotos was to hold talks with his German counterpart, Olaf Scholz, on the sidelines of a meeting of finance ministers with the Party of European Socialists (PES).

While the loss of the share of profits destined for Athens would only have a minor fiscal impact, it would be a very negative signal for markets. The issue is now likely to be discussed at next week’s Eurogroup meeting, even though it was originally thought that Greece’s peers would raising Greek matters ahead of the European elections on May 26.

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