Greece’s anti-austerity government needs to raise at least three billion euros ($3.4 billion) through additional fiscal measures by the end of this year to meet the minimum budget targets acceptable by creditors, an official with knowledge of the discussions said.
The reductions would bring the primary budget surplus in 2015 to just over 1 percent of gross domestic product, a target Greek Interior Minister Nikos Voutsis said today is acceptable. Without any change in fiscal policy, Greece would end 2015 with a budget deficit of about 0.5 percent of GDP, the official said. The so-called primary budget balance doesn’t include interest payments.
Greece, whose debt-to-GDP ratio is the highest in Europe, is locked in talks with euro region governments and the International Monetary Fund over the terms attached to its 240 billion-euro bailout. Uncertainty over whether it will do enough to receive more money has triggered a liquidity squeeze, prompting the European Commission to revise down deficit and debt forecasts last week.
The commission now predicts the country’s debt will be 174 percent of GDP next year, 15 percentage points above the level projected in February. And that assumes Prime Minister Alexis Tsipras reaches a deal to get previously agreed aid flowing by June. The commission predicts that as defined in the bailout program there will be almost no surplus.
Budget cuts aren’t the only thorny issue in the negotiations over the disbursement of the next emergency loans tranche for the cash-strapped economy. Disagreements remain over the retirement age, pension cuts, privatizations and the government’s intention to reinstate collective bargaining restrictions in the labor market, the official said.
Greek stocks and bonds rose today, extending gains after the European Central Bank decided yesterday to maintain its assistance to Greek banks. The benchmark Athens Stock Exchange gaining 0.6 percent at 11:16 a.m. local time. Yields on ten-year notes fell 18 basis points to 10.72 percent
As negotiations drag on, euro-area governments are considering putting together an aid package for Greece to cushion the economy in the event that it is forced out of the common currency, two people familiar with the discussions said yesterday. While the Greek government expects to remain in the euro, some officials are considering mechanisms to ring-fence Greece both politically and economically in the event of a breakup, one of the people said.
Creditors expect Greece to raise almost no revenue from state asset sales this year amid government demands to renegotiate the terms of tenders, the official said. In addition, most of the measures the Greek government has proposed so far in order to meet its fiscal targets add up to zero positive effect for the budget, they said.
Of all the main conditions attached to the country’s bailout compliance review, the only areas in which the positions two sides converge is the streamlining of sales-tax rates, and the introduction of clauses safeguarding the independence of tax administration, the official said.
A second official involved in the talks also said that the two sides are still far apart on labor market and pension system overhauls. The revision of sales tax rates and some negligible changes are the only matters where progress has been made. No definitive projections can be made on Greece’s fiscal gap, that person said.
Both officials asked not to be named, as talks between the Greek government and its creditors are private and ongoing. A spokesman for the Greek Finance Ministry declined to comment.
As bailout talks remain stalled, Greece can drain the reserves of pension funds, hospitals, universities, and local authorities to stay afloat until possibly the last week of June, one of the officials said. The forecast assumes that Greece will keep paying pensions, salaries and debt, while building up arrears on most other obligations.
The country has so far raised a total of 600 million euros, following the implementation of a decree ordering general public sector to transfer their cash reserves to the Bank of Greece for use in short-term financing operations, the government said.
Greece yesterday paid back the IMF about 750 million euros by using funds from its holding account at the IMF, a Greek official said.