Greece, EU/IMF lenders resume talks over bailout reforms

Greece resumed talks with its creditors in Athens on Monday over reforms it must make to conclude a drawn-out review of its bailout progress and unlock more than 5 billion euros of financial aid.

The reforms under discussion include changes to pensions and taxes, plus additional measures that Athens would have to put in place for use in case it misses the budget targets set out in a multi-billion euro bailout it signed up to in August.

Those ‘contingent measures’ would kick in only if the regular measures are not enough to generate a primary budget surplus of 3.5 per cent of GDP by 2018.

The measures, which are supposed to produce budget savings of 2 per cent of GDP, have not yet been identified and Athens says Greek law does not allow such policies to be legislated in advance.

“You cannot legislate ‘x’ if ‘z’ happens in 2018 or 2019,” Finance Minister Euclid Tsakalotos said after meeting his eurozone colleagues in Amsterdam on Friday, adding that Athens was working with its lenders on a solution.

Greece needs the funds that would be unlocked by a deal to pay off IMF loans, ECB bonds maturing by July, and state arrears, but finding additional budget cuts – even ‘contingent’ ones – will be hard for the left-led government.

It was re-elected in September on promises to mitigate the impact of austerity and has a fragile parliamentary majority.

EU institutions and the International Monetary Fund differ on whether regular reforms are enough to hit the target, hence the decision to seek contingent measures. The 2 per cent of GDP figure is the difference between their forecasts for the primary surplus Greece can achieve in 2018.

Due to their different fiscal assumptions, the lenders also disagree on whether Athens needs debt relief now. Talks have started and are expected to continue after an agreement is reached on the contingency package.

Prime Minister Alexis Tsipras initially hoped for a deal before Orthodox Easter, on May 1. But chances for a deal this week are slim. If there was a deal on both the regular and the contingency package, euro zone finance ministers could meet as early as Thursday to assess the progress made.