Greece fast-tracks reform package to unlock final bailout funds

Greece’s parliament is set for a fast-tracked debate on a wide-ranging package of reforms as Athens scrambles to pass measures needed to unlock a final tranche of international bailout funds and kick-start preparations for the country to exit the programme.

The emergency procedures invoked for the debate allow two days of discussion by lawmakers on structural measures, including labour, pension and tax reforms and a medium-term fiscal plan, before a vote on the draft bill on Thursday.

With the legislation expected to pass and be in place ahead of a critical meeting of EU finance ministers on June 21, Greece hopes to unlock a final €12bn bailout tranche and clear the way for a decision on medium-term debt relief to be implemented in the post-bailout period.

The finance ministers’ meeting is scheduled to finalise the terms of Greece’s exit, which is due on August 20, including the crucial question for investors of how much debt relief Athens can expect.

“We are now on the home straight for a successful conclusion of the Greek stability support programme,” Pierre Moscovici, the EU’s economic affairs commissioner, said on Tuesday. “I am confident we will get there.”

Eurozone officials are holding intensive talks with the International Monetary Fund to hammer out a debt relief package that is moderate enough to be accepted by Germany but that can convince the IMF that Greece’s debts are sustainable.

The fund has so far refused to contribute to the current €86bn bailout because it views the debt level as unmanageable — a position the eurozone needs it to reverse to boost investor confidence. But Berlin has repeatedly clashed with the IMF over how this should be achieved

Progress was made at a meeting of senior officials in Paris last week, according to people involved in the negotiations, but key questions remain.

One issue is how far to extend the maturity of about €100bn of older bailout loans to Greece. The IMF, European Commission and some governments back an extension of about 10 years. Germany had suggested during earlier rounds of talks that three years would be enough, but officials involved in the negotiations said Berlin had recently indicated that it was willing to offer a slightly longer extension.

There are also practical issues about how the IMF can demonstrate it sees Greek debt as sustainable, given that time is running out for it to do so by joining the bailout programme as a full partner.

“It is for the IMF to decide whether to activate its programme,” said Mr Moscovici. “At this stage this appears quite unlikely . . . What matters is that the IMF is reassured by the agreement we reach on debt sustainability and is able to publicly endorse that agreement. This is key for the credibility of the agreement and for the confidence of investors.”

The finance ministers also plan to settle a system of post-programme surveillance to prevent possible backsliding by Greece.

Euclid Tsakalotos, Greek finance minister, has insisted Greece will not ask the eurozone for a precautionary credit line or additional financial assistance, in line with the Syriza government’s policy of achieving “a clean exit” from three separate bailout programmes since 2010, which were rigorously supervised by the EU and IMF.

Several lawmakers from the centre-right New Democracy party have said the latest reform package is so wide-ranging it should be dubbed “Greece’s fourth austerity programme”.

The reforms include completion of a long-delayed national land registry by 2021 and implementation of performance evaluations for civil servants that have prompted strong union opposition.

The bill also includes more pension cuts, to be implemented in 2019; a reduced tax-free allowance on incomes from 2020; labour market reforms; and further liberalisation of the energy market through privatisation of state-owned electricity plants.

The medium-term fiscal plan, ending in 2022, forecasts a rise in the primary budget surplus — before payments of interest and principal on the debt — from 3.5 per cent of gross domestic product in 2019 to 5.2 per cent in 2022.

Some analysts are sceptical that Greece will be able to sustain such high surpluses in the post-bailout period given the projected impact on spending of pension cuts and the income tax changes.

“The fiscal plan is based on optimistic assertions,” said Miranda Xafa, a senior scholar at the Centre for International Governance Innovation.

“Private consumption accounts for two-thirds of output and contributes most of the VAT revenue. It is projected to accelerate in 2019-2020 when pension cuts and a reduction in the tax-free income tax threshold will kick in.”

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Greece fast-tracks reform package to unlock final bailout funds

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