The government’s recent policies, which appear dictated in the most part by looming elections, have troubled the European Commission, which sent a stern message in its second enhanced surveillance report on Wednesday, saying that Greece must boost its reform efforts.
With Greece having implemented just 10 of 16 prior actions it had committed to last summer, the chances that a 970-million-euro tranche will be disbursed by the March 11 Eurogroup remain slim – even though government sources insisted there is no reason for concern.
The biggest obstacle appears to be the EC’s objections to the politically sensitive issue regarding the protection of debtors’ primary residences. The EC and European Central Bank are calling for a review of the government’s proposal for the legal framework to replace the so-called Katseli law on household protection.
The report said the new protection scheme “offers a limited state subsidy component to the borrower.”
“Based on a preliminary assessment, the proposal raises serious concerns regarding its impact on the payment culture and bank balance sheets and its overall design could enable strategic defaults,” the report said.
It also expressed concern about a spate of public sector recruitments ahead of elections this year that the government has been playing down. “There are signs of upward pressures on the public sector wage bill through excess hirings, which need to be addressed,” it said.
The report called on Greek authorities to keep within the replacement rule for permanent hirings (one hiring for one departure as of this year) but also to rein in the trend of increasing temporary staff “so as to avoid a return to the pre-crisis excessive number of public servants and corresponding pressure on fiscal targets.”
The document also referred to a recent announcement by Prime Minister Alexis Tsipras, increasing the minimum wage by 11 percent. Conceding that the increase might have a positive impact and “translate into higher consumption spending,” the report said that “downside risks dominate the forecast.”
“Possible wage pressures pose downside risks both on investment recovery and on export performance due to losses in competitiveness,” it said.
Prime Minister Alexis Tsipras is to meet Economic Commissioner Pierre Moscovici on Thursday in Athens.