Greece proposes automatic cutbacks in case of fiscal fallout

Greece proposes automatic cutbacks in case of fiscal fallout

Greece has offered to automatically cut spending as a contingency plan for further financial aid, using official data as a trigger point if bailout targets are missed, a government official said on Tuesday.

Talks between Greece and its international lenders on unlocking a new tranche of aid have snagged over discord on whether present cutbacks are enough for Greece to reach a primary surplus target of 3.5 percent by 2018.

Indebted Greece, which signed up to a third bailout worth up to 86 billion euros last year, needs creditors from European Union institutions and the International Monetary Fund to sign off on reforms to release a bailout installment exceeding 5 billion euros, needed to pay off maturing ECB and IMF loans in June and July.

Reforms under discussion include changes to pensions and taxes, and additional measures, or “contingent” measures Greece would need to introduce in case it misses its budget targets.

The left-led government says Greek law bars it from legislating on a hypothetical event, and has offered instead to introduce a mechanism which would automatically trigger spending cutbacks if budget targets are missed.

“This mechanism will be included in the legislation linked to the (review) agreement and which Athens will need to adopt,” the official said.

Greece and its official creditors were “very close” to an agreement on the main package of pension and tax reforms which would be the equivalent of 3.0 percent of GDP, the official said. Talks resumed in Greece on Monday.


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