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Fitch: Greece's Second Bailout Program Review Might Take Until 2nd Quarter of 2017

newego_LARGE_t_1101_53545752Negotiations for the second evaluation of Greece’s bailout program may continue until the second quarter of 2017, Fitch estimates.
In its report on the Greek economy, the U.S. rating agency notes that the Greek government does not take full ownership of the program, surprises in the political field are not ruled out, and that it is likely negotiations with lenders for the second evaluation will continue in 2017.
Fitch confirms the CCC rating for the Greek economy, and says that the risk for the program implementation is high, although the completion of the first evaluation and the approval of the second loan tranche showed that relationships with lenders have improved. However, it notes that the first program review was completed several months later than originally planned.
Fiscal performance so far this year is in line with the target of a primary surplus of 0.5% for 2016, but the remaining financial targets for primary surpluses of 1.75% of GDP in 2017 and 3.5% in 2017 will be harder to achieve.
For the completion of the first evaluation, the government legislated prerequisite measures of which more than 2/3 come from pension and tax reforms, the report says. The relatively weak ownership of the program makes the full implementation difficult, it continues.
In regards to the second review, Fitch notes that labor reforms will be the most controversial issue. The rating agency believes that the Greek government has enough “liquidity cushions” up to the second quarter of 2017, which increases the likelihood that negotiations will resume next year, the report says .
Moreover, the rating agency says that the nature of the International Monetary Fund‘s participation in the program is likely to depend on the relaxation of the medium-term fiscal objectives and the degree of commitment to debt relief. Until now, euro zone finance ministers have only set general parameters for a possible agreement on debt easing.
Referring to the political situation in Greece, Fitch says that SYRIZA is losing ground as compared with its political counterpart New Democracy in the polls. Yet, despite the slim majority, it is expected that Alexis Tsipras can continue to rely on the votes of centrist parties but the possibility of political surprises remains.
Finally, regarding the banking sector, the report points out that the main challenge now are non-performing loans, the number of which remains very high and this is a problem that it will take a long time to resolve.

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