The quartet of Greece’s creditors return to Greece on Monday to discuss several issues that remain unresolved, with the finance minister worrying that new fiscal measures might be needed.
Finance Minister Euclid Tsakalotos says that the bailout program evaluation must be completed as soon as possible so that the economy kickstarts on the second half of 2016. Otherwise, the government might need to take extra fiscal measures and throw the 2016 budget off track. There are five major issues that hold back the successful implementation of the bailout program.
The first issue the two sides will negotiate is the fiscal gap until 2018. Greece is required to reach 0.5 percent of GDP primary surplus in 2016, 1.75 percent in 2017 and 3.5 percent in 2018.
Lenders have found that for 2016 there is a fiscal gap that amounts to 1.5 percent of GDP, translated to 2.5 billion euros. About 1.5 billion euros is from revenues that Athens is not likely to receive. Creditors believe that there will be lost revenues from tax evasion and extra levees that haven’t been implemented yet.
Also, the Greek government has pledged military spending cuts that amount to 500 million euros, but the cuts have not been legislated yet. Another 500 million euros estimated from security fund contributions is not likely to be received due to high unemployment.
The second major issue is security fund reforms. There is a wide gap between the two sides on the matter. Creditors insist that the pension system is not viable unless pensions are slashed. They propose a minimum pension of 300 euros or a pension based on income. The Greek side pushes for a minimum national pension of 384 euros.
The third thorny issue is taxation. Athens insists on higher taxes across the board, with lenders arguing that tax payers are unable to pay them. Lenders doubt that heavier taxation will bring an extra 500 million euros in revenues as the Greek side believes. They also want to know what would happen with the single property tax (ENFIA) as the deputy finance minister has announced changes on the particular tax.
The fourth unresolved issue is bad loans. Lenders have proposed that banks sell bad loans to distress funds, with the Greek government trying to protect foreclosures of primary residencies and small businesses.
Finally, the establishment of an independent privatization fund – as required by the bailout agreement – is not completed yet. There are hard talks on who would be managing the fund. So far it is agreed that the president of the fund will be appointed by the creditors, 60 percent of the board will be appointed by the Greek government and 40 percent by the creditors. This has to be legislated by the end of March, with the Greek side delaying the issue.
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