A draft report prepared by the European Commission on Greece’s compliance with the bailout agreement requirements and the sustainability of the Greek debt, suggests that Greece would have to implement some austerity measures originally scheduled for 2020 a year earlier. This would happen if creditors see that the primary surplus target of 3.5% in 2019 is beyond reach. “and this would mean that lowering of the tax-free basis would be implemented already in 2019, Greek media interpret the Commission analysis. Lowering the tax basis would mean that the poor with less than 6,000 euro annual income will be taxed as well.
- Greece currently owes its European peers 224 billion euros, an amount that underpins its creditors’ desire to keep a close eye on the country even after it leaves their direct oversight.
According to Bloomberg, the analysis of the sustainability of Greece’s debt foresees a worse trajectory for the country’s debt than what was expected a few months ago.
According to the commission’s baseline scenario, Greece’s debt-to-GDP ratio is expected to reach 181.1 % in 2017, 165 % in 2020, 127.2 % in 2030 and 96.4 % in 2060, forecasts that are slightly higher than what was projected at the end of the last review in June.
The slightly worse debt trajectory underscores the likelihood that a final debt-sustainability analysis at the end of Greece’s program will confirm the need for further re-profiling of Greece loans, especially if economic growth lags.
What’s more, in its analysis the commission raises questions about whether the foreseen size of Greece’s cash buffer should be reassessed, with the planned 10.2 billion-euro cushion only covering financing needs of less than 10 months following the end of Greece’s bailout — an amount that could increase with future market issuances and progress in cash management reform.
A cash buffer of 17 billion euros would cover financing needs for on year after the end of the bailout, while 20.3 billion would fully cover financing needs until the end of 2019, and around 30 billion euros until the end of 2020, the commission said in its report.
According to Bloomberg, creditors have little intention to allow Greeks go ahead without supervision, once the bailout program exits in summer 2018.
Meanwhile, euro zone finance ministers meet in Brussels under the new Eurogroup chief Mario Centeno from Portugal. They are expected to conclude the third review but postpone the release of the bailout tranche estimated at 6-7 billion euros, until Greece has completed all required milestones, by February.
Top on European creditors’ agenda is the smooth running of electronic foreclosures and privatization of Greece’s natural gas grid operator. Desfa.
PS so the Commission put pressure on Greece to accept primary surpluses of 3.5%, not it was target is hardly achievable. And who is to blame for this? The Greeks, of course.