Greece managed to push its own proposal and narrowly escape the trap of the International Monetary Fund to legislate now for each and every specific austerity measure totaling 3.6 billion euro in case it will fail to meet the target of 3.5% Primary Surplus in 2018. The Greek proposal of the automatic “cutter” (koftis) as it is described in Greek foresees that the percentage of cuts depending on the deviation from the target.
If deviation 0.25% of GDP ⇒ no cuts
If deviation 0.26% – 0.75% ⇒ measures worth €900 million
If deviation 0.76% – 1.25% ⇒ measures worth €1.8 billion
If deviation 1.26% – 1.75% ⇒ measures worth €2.7 billion
If deviation 1.76% – 2.25% ⇒ measures worth €3.6 billion
According to the proposal, each year on April 30th the Finance Minister will write a report about the deviations based on data of Greek Statistics Authority (ELSTAT) and publish in on the Official Government Gazette and to the Parliament. If finding result in deviations, the automatic measures will be implemented with a Presidential Decree that will have to be issued on May 31st. In the previous bailout agreements 2010-2014, responsible for such decrees was the General Secretary for Fiscal Policy.
KTG understands that that monitoring the contingency measures mechanism could go into effect already as of 2016.
Cuts in the category of the so-called “special payrolls” in the public sector that will be implemented in summer 2016 due to 3. bailout agreement are estimated to be one-third of the contingency measures that will be needed to fill a deviation of 0.5%.
Greek media note that the automatic contingency measures will bring cuts in state expenditure mainly in pensions and wages of the public sector. Finance Minister Euclid Tsakalotos said that Defense and Welfare expenditure will be exempted from the cuts, somewhere I read also the health sector – the troubled Greek health sector that was target of th eIMF and PASOK & New Democracy governments from the very first bailout in 2010.
The Greek proposal will be the base for discussion at the Eurogroup meeting on May 24th 2016. One of the main issues Greece and the lenders have to agree upon is who will be monitoring the deviations. The IMF is known to not accept without reservation the data of the ELSTAT. But at the every end, the IMF may decide to stay away from active participation in the ESM Greek bailout and be limited in the role of technical assistance and monitoring of the Greek progress – of failure.
PS the word “koftis” common Greeks, mainstream media and also government ministers use for the “automatic contingency measures” has a real vulgar connotation. But such extra measures are indeed vulgar after 7 years of austerity.