Troika requirements to persuade lenders and markets

Troika requirements to persuade lenders and markets

Additional measures are requested from the governmentby the European Commission, to "lock" the goal of reducing the deficit to 1.5% in 2015.

Troika requirements to persuade lenders and markets

Additional measures are requested from the governmentby the European Commission, to "lock" the goal of reducing the deficit to 1.5% in 2015. The goal is threatened not only by the huge uncertainty about what will happen between now and 2015 (eg performance measures, growth, progress rates, the European solution to the debt crisis, oil price explosion and many others), but also even by the revision of data from past years.

Despite the optimism expressed by Giorgos Papaconstantinou yesterday that there will be no major upsets concerning the estimates, the Commission itself leaves open the possibility that the findings as to the progress of the Memorandum in 2010 ended not with a deficit of 9,4% but a higher one, possibly at 10% of the GDP according to estimates, .

This would lead to the need for additional measures of 1 billion (in addition to the "cap" of 1,8 billion this year and 29 billion by 2015). The data from GOCs, hospitals, pension funds and local authorities, which is under consideration, is cause for concern.

The Commission calls for increased public utility tariffs, reduction of operating costs and salary adjustments.

On the taxation front, it seeks to put under the microscope tax exemptions, tax incentives and the framework for business taxation and capital.

Regarding pensions, a term has been ontroduced about reducing ancillary income in funds with deficits. In view of the enforcement of the new state payroll, it is asking for the rationalisation of the matrix of salaries and allowances, and the expansion of pay scales and, in the context of social spending, seeks the elimination of overlapping benefits and their optimised usage, recommending indirectly the prescription of income criteria.

Guarantees to creditors

The EC, although green-lighting the release of the fourth installment of 15 billion, warns of the risk of encountering more difficulty in collecting taxes, delays in promoting structural reforms, "contamination" from other economies in the region, and the recession and increased spending on interest payments are identified as aggravating factors.

The report of the Commission sets the tone for the harsh conditions and safeguards under which the partners and Germany would agree to concessions sought by Greece.

Although, as stated by Finance minister yesterday at the press conference, the updated memorandum did not include the final goal of 50 billion euros (because it exceeds the length of the memorandum), but only the target of 15 billion euros by 2013 (which is in the memorandum), ultimately foreign evaluators included the target of 50 billion in their report. That is to say, it remains a firm commitment, though not included in the memorandum.

Papaconstantinou acknowledged that the Greece exiting the crisis depends largely on decisions taken at EU level, suggesting that it is not just the extension. He stressed that Greece has already done a lot more than originally envisaged by the memorandum and the new Competitiveness Covenant (eg commitment to privatization, increasing retirement age based on life expectancy, reductions in supplementary pensions etc.), wanting to show that all partners should be persuaded to offer "something more" (eg reduction of interest rates).

Based on the updated Memorandum and the commitments of the government, the deficit should be reduced by 29 billion within 5 years. Especially for the 2012 - 2014 period, measures of 14,5 billion euros should be identified and taken, while 1,8 billion more will have to be obtained this year.

Meanwhile, the minister spoke about the need to strengthen the Greek banking system, which, he said, is healthy nonetheless. "The Greek banking system should acquire even better capital adequacy, to shield itself from the difficulties and challenges that exist. Fortunately, we have a healthy banking system, which has neither invested in junk bonds, nor committed the excesses of other countries. If one adds public and private debt, one will realise that Greece is in a very good position, and we want to preserve it", he said characteristically.
 

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