Lenders, Greece close to agree reforms, contingency steps need more work-EU

By Jan Strupczewski

Greece and its international lenders are almost in full agreement on a package of reforms that has been negotiated for months, but a set of contingency steps requested by eurozone ministers last Friday still needs work, a top EU official said.

Euro zone finance ministers pencilled in an extraordinary meeting on Thursday to sign off on the deal with Athens and discuss Greek debt relief, but the meeting was cancelled because of insufficient progress towards a deal.

European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters that discussions with Athens were in three areas — the reform package agreed under the bailout programme, the contingency reform package requested by lenders last Friday and debt relief.

“We are 99 percent of the way there, we have converged on almost all aspects,” Moscovici said on the original reform package, which includes a pension and income tax reform, a way to deal with bad loans and setting up a privatisation fund.

This original reform set is to generate 3 per cent of GDP savings for Greece.

But because of a difference in forecasts of Greece‘s primary surplus in 2018 between euro zone lenders and the International Monetary Fund, euro zone ministers asked Greece last Friday to prepare a set of contingency steps to be implemented only if Athens misses targets.

The contingency package is to provide 2 per cent of GDP savings — the difference between the IMF and euro zone forecasts — has to be legislated up-front and kick in automatically if Greecedoes not meet targets.

Greece argues that its laws do not allow it to pass contingency laws and offered to legislate an automatic mechanism for across-the-board spending cuts if it falls short of goals.

“This deserves to be looked at, given due consideration,” Moscovici said.

“We have a few proposals on the table, which go in that direction, but we need to work on that,” he said, adding the mechanism of contingency steps had to be compatible with Greek laws.

He said the decision to postpone the meeting of eurozone finance ministers to next week or the week after that, depending on progress in negotiations was good, because having a meeting only to announce lack of agreement would send a bad signal.

“The decision to postpone today was wise, we should not give a signal that we were not successful,” he said.

“We are 99 per cent there on the first package. As for the contingency mechanism, which is in our view is not really justified by data, but politically necessary, let’s work on that,” he said.