Race to tie up loose ends

A few days after the relief of a deal being reached between the eurozone and International Monetary Fund agreement to reduce Greece’s debt and release further bailout funding, anxiety returned to the government as it tries to line up the bond buyback scheme, the recapitalization of Greek banks and the new tax code that are being demanded by its lenders as conditions to proceed with the bailout program.

The coalition suffered a blow late on Thursday when it emerged that banking representatives informed Finance Minister Yannis Stournaras that they did not want their institutions to take part in the bond buyback scheme that is crucial to implementing the debt reduction plan agreed in Brussels earlier this week.

There is also concern within the administration about a draft bill overhauling tax legislation. One of the main areas of contention between the coalition parties is the scrapping of tax breaks for families with children. Stournaras met with Prime Minister Antonis Samaras on Thursday to discuss this issue as well as the completion of the 48-billion-euro bank recapitalization.

Stournaras is due to meet with representatives of PASOK and Democratic Left on Friday in the hope of settling any differences over the tax bill so he can focus on setting up the buyback scheme.

A spokesman for the IMF, Gerry Rice, stressed that the successful completion of the bond buyback scheme was necessary before the release of a crucial 34.4-billion-euro rescue loan that Greece is depending on next month to avoid default. He noted that the scheme was an integral part of a “package” drafted by foreign creditors with the aim of making the country’s debt sustainable. “This is a significant and concrete package,” Rice told reporters in Washington yesterday. “But its success requires both Greece and the European partners to fully implement their commitments.”

Meanwhile, the report compiled by troika inspectors and studied by eurozone finance ministers ahead of their decision to release more funding for Greece was leaked on Thursday. The officials from the European Commission, European Central Bank and International Monetary Fund highlighted several areas in which Greece had made substantial progress, such as fiscal consolidation, the lowering of unit labor costs, a reduction in healthcare expenditure, the use of an electronic prescription system, a reining in of losses at public enterprises and the lifting on restrictions in some closed professions.

However, the inspectors stress that Greece’s performance this year on structural reforms has been “mixed.” They say that improvements to tax administration came to a “virtual standstill” and that a new tax bill has been “much delayed.” They also highlight the “disappointing” revenues from privatizations but note that the process has started to pick up momentum. The report also stresses the “fragile” state of Greece’s banking sector.

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