The European Commission is reportedly looking for ways to include returns from European central banks’ profits from Greek bonds they bought through the Securities Market Program (SMP) and the Agreement on Net Financial Assets (ANFA) as budget revenue.
Including the amount, about 1.2-1.3 billion euros annually, would indirectly help reduce Greece’s primary budget surplus target from the equivalent of 3.5 percent of the country’s gross domestic product to below 3 percent, the Commission estimates.
If this is approved, it would create significant breathing space for the government to implement its promised growth-boosting tax cuts.
However, the return to Greece of profits from the bonds bought under SMP and ANFA is conditional on the implementation of reforms. Thus, the government is compelled to fast-track these reforms.
The government is betting on five specific reforms to convince the creditors of its determination to live up to its promises and expect, in return, a more supple approach on expected surpluses.
Those fire reforms are: the further sell-off of Athens International Airport; the privatization of Hellenic Petroleum; the restructuring of financially troubled power utility PPC; the proposal on nonperforming loans; and the investment at the site of the former Athens airport in Elliniko.
The government is actively working on all these projects. Specifically, the four joint ministerial decisions required to unblock the Elliniko project will be signed by the end of August, while the bidding for the casino on the same site will take place by end-September.
On the Asset Protection Scheme regarding the securitization of some of the bad loans with the bonds guaranteed by the state, Deputy Finance Minister George Zavvos has submitted an amended plan to the European Commission and the goal is to get the Directorate-General for Competition’s green light by end-September.
On PPC, Environment and Energy Minister Kostis Hatzidakis is also drafting a plan to restructure the company.
Those reforms should have been implemented by the previous government, whose delays on this front led to a negative third report under the so-called “enhanced surveillance” regime that followed Greece’s exit from the third austerity program in 2018.
The government wants to see a positive report from the assessment of the creditors which begins on September 16.
The government has to implement its reforms in an unstable global environment, with many of the largest economies on the brink of recession or already there.
Last week, Germany announced its GDP dropped 0.1 percent in the second quarter of 2019, the US-China trade war flared again, stock markets worldwide were hit and the Greek stock market confirmed that it is especially vulnerable to global turbulence.
There is also a political crisis in Italy, the threat of bankruptcy in Argentina and a likely no-deal Brexit.
The Finance Ministry is closely following international developments, because of their likely negative impact on exports, tourism and overall economic growth.
Finance Minister Christos Staikouras believes that the government’s priority is to keep its end of the bargain concerning reforms because they constitute a strong defense against global economic turbulence and will be a strong argument for the government in the negotiations to follow.
Whatever Europe’s reaction to a probable slide into recession is, Greece will be in a better position to push for its demands.
Brussels sources believe that Germany, however unyielding it may appear on the budget surplus issue, will, in the end, be forced to make concessions toward a looser fiscal policy to boost its own growth.
In such a case, Greece will not be exempt from the fiscal easing, these sources say. They also believe that the effort to reduce the primary surplus will succeed for 2021 and 2022.
The Commission’s plan to include proceeds from the return of bond profits is being facilitated by a Eurogroup decision in June on lessening the debt burden.
The Finance Ministry believes the 3.5 percent budget surplus target will be achieved, although there is little margin for error. During the first seven months of the year, the surplus exceeded the target, and during the first 10 days of August revenue exceeded last year’s by 100 million.
Ministry officials believe that the final result will depend on the success of the new chance given to individuals and firms to settle their debts to social security funds in as many as 120 monthly installments.
The measure was derided by the creditors, who claimed that it would reduce revenue by 0.3-0.6 percent of GDP.
The Finance Ministry begs to differ, seeing a moderately positive impact on revenue, although they still see the measure as a gamble.
Deputy Finance Minister Theodoros Skylakakis is in charge of keeping spending in check, with an extensive review.