Greece wants softer austerity targets after bailout expires

Greece wants softer austerity targets after bailout expires

Greece’s left-led government wants easier budget saving targets after its current multi-billion euro bailout ends in 2018, a senior official said Wednesday.

Alternate Finance Minister George Houliarakis said the government will stick to its agreed targets over the next three years, but wants a significant reduction afterwards to allow tax cuts and provide for the risk of weaker economic growth.

Under last year's third bailout deal, Greece must achieve primary fiscal surpluses – that is, excluding the cost of debt servicing – of 0.5 percent, 1.75 percent and 3.5 percent of annual economic output for the years 2016, 2017 and 2018.

While Greece has committed to maintain the high 3.5 percent target in the medium term after 2018, Houliarakis said Wednesday that he would prefer surpluses in the range of 1.5-2 percent after the bailout deal expires.

“There is a desperate need to put taxes, and especially corporate taxes, on a sustainable path, well below where they are now,” Houliarakis said, speaking at a conference at Lagonissi, south of Athens.

Over the past year, the government – first elected on pledges to reverse deeply resented austerity measures – raised taxation on a series of products, from tobacco to tourism, and brought the key sales tax rate up to 24 percent. It signed up to the third bailout under threat of expulsion from the group of European nations that use the euro currency.

Greece’s bailout programs started in 2010 to keep the country afloat after it was locked out of bond markets. In return for more than 200 billion euros in rescue loans, successive governments imposed harsh income cuts, tax hikes and reforms. While the cutbacks drastically improved fiscal discipline, they deepened a recession that lopped 25 percent off the economy, and left one in four Greek workers jobless.

The surplus targets have also highlighted rifts between the country's creditors. The Europeans insist they are reasonable, and the International Monetary Fund sees them as too ambitious. The Europeans and the IMF also disagree on the urgency and scope required in reducing Greece’s crippling debt burden.

“Relying on optimistic fiscal and growth targets should be avoided as it risks setting Greece up with failure again, which will increase costs for Greece and Europe down the road,” said Delia Velculescu, IMF mission head for Greece.

Nicolo Giammarioli, representing Greece’s biggest creditor, the European Stability Mechanism, said the post-2018 commitment stands.

“You can ask for renegotiation, and we can have a debate in 2018 … but the commitment is there also for the period beyond” expiry of the bailout, he said, speaking at the same conference.

On Tuesday, the ESM disbursed a 7.5 billion euro rescue loan installment to Greece, after completion of a review of the country's austerity and reform progress. A further 2.8 billion will be released in coming months, once the country meets further requirements.

ESM managing director Klaus Regling warned that while completion of the review was a positive step, the process took too long: Nine months instead of the originally scheduled three.

“Such delays are a drag on the economy. They hold up the reforms,” Regling said in Lagonissi. “The second review is coming up in autumn.”


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