Greece prepares response to troika but bailout extension likely

Greece is preparing its response to the troika after the country’s lenders demanded a firmer commitment from Athens on fiscal and structural measures, which likely means that the current bailout will have to be extended by at least a month so an agreement can be reached.

Prime Minister Antonis Samaras met on Wednesday with Finance Minister Gikas Hardouvelis and Labor Minister Yiannis Vroutsis to discuss the troika’s response to Greece’s proposals. The government received an e-mail from its lenders at around 2 a.m. on Wednesday and, according to sources, it demanded clarification of some points as well as a stronger commitment that Greece would take extra fiscal measures next year if the fiscal gap emerges as being bigger than estimated.

The government has proposed canceling the 30 percent reduction in the solidarity tax as one of the steps it could take to cover the shortfall if needed. The coalition would prefer these measures to be included in a supplementary budget next year but the troika may insist that they are passed earlier in a multi-bill, with clear triggers that would lead to them being implemented.

The issue may be raised at Thursday’s Euro Working Group but is certain to be discussed at Monday’s Eurogroup. Given that time is running out for the program review to be concluded and an agreement on a precautionary credit line to be reached this month, an extension to the bailout seems certain. The issue that must be tackled now is what period the extension will cover. The government favors only a one-month prolongation of the bailout, although there is the option of it being stretched out for another six or 12 months.

Samaras wants to avoid the latter options as he feels they would damage the coalition’s chances of winning the presidential vote in February.

Addressing a business conference on Wednesday, Samaras said negotiations with the troika were tough but that Athens was participating in a “responsible and decisive” way and looking forward. “We are emerging from a difficult period of successful fiscal adjustment,” Samaras said, adding that Greece is “entering a new era, a new period of sustainable growth,” and pointed to a gradual drop in unemployment.

Samaras’s deputy Evangelos Venizelos, who was in Brussels on Wednesday, struck a similar tone, noting that Greece has “made impressive achievements and therefore has significant arguments.” He called on Greece’s creditors to “realize that Greece has exhausted its capabilities.”