Discussion on Greece was brief at Monday’s Eurogroup, but the council of eurozone finance minsters sent a clear message to Athens that creditors are ready to cooperate with the new government while warning that the handouts announced in May by the previous administration are putting growth and fiscal targets at risk.
While creditors would not likely accept a reduction to the primary surplus target, set at 3.5 percent of gross domestic product, they would discuss the suspension of the tax-free ceiling reduction if targets are met in other ways. The key discussion is now anticipated at the September 13 Eurogroup, which will address the damage efforts for the primary surplus target caused by the outgoing government’s handouts.
“Obviously developments in Greece are extremely important to us,” said the head of the European Stability Mechanism, Klaus Regling. He noted that the third post-bailout assessment discussed on Monday contained several challenges, but added there has been a notable improvement in the Greek economy compared to a few years ago.
Crucially, asked to what extent the creditors would be open to a reduction to fiscal targets, Regling said the 3.5 percent of GDP target Greece has committed to is a “cornerstone of the program,” adding that it’s “very hard to see how debt sustainability can be achieved without that.”
The third assessment report discussed on Monday was not followed by any decisions about debt easing measures, while any disbursement could not be analyzed further given that Greece was only represented by outgoing alternate finance minister Giorgos Houliarakis.
“We look forward to a discussion with the new government on the issues stemming from the Commission report and the policies of the new government,” said Eurogroup chief Mario Centeno.