Brussels presses Greece on reforms to unlock €7bn bailout

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Brussels is pressing Greece to pass a single legal act within days to execute dozens of contentious economic reforms as eurozone ministers prepare to unlock around €7bn in new rescue loans for the country.

The reforms will also clear the way for talks with Athens on new debt-relief measures, but EU officials have insisted that formal steps won’t be taken until its current bailout programme ends in the summer of 2018.

Despite progress in the long-stalled bailout, officials said uncertainty over the outcome of the talks was a drag on the country’s economy. The growth forecast for 2017, to be published on May 11th, will be revised down from 2.4 per to close to 2 per cent, a European official said.

Greece and inspectors from the EU/International Monetary Fund struck a deal early on Tuesday to implement a package of 140 separate actions in return for a new round of aid from the European Stability Mechanism bailout fund.

This process is already well in train, but new legislation is required to execute around 60 actions including healthcare changes, increasing the powers of the new independent revenue agency, the rollout of a guaranteed minimum income scheme and labour market reforms.

The package also includes two additional fiscal measures from 2019 — cuts to pensions and income tax credits, each costing 1 per cent of gross domestic product. These may be offset by additional social spending if Greece continues to exceed its target for the primary budget surplus, which is the surplus before debt repayments.

Greece aims to implement all of this in an omnibus legal act by May 18th, an ambitious timetable that concludes four days before eurozone finance ministers gather to sign off on the new loan.

The payment is required to help Greece make a big debt repayment in July.

Attention has again turned to the country’s campaign for debt relief from its international creditors, a constant source of tension given the IMF’s reluctance to join the bailout without steps to reduce a debt load it considers unsustainable.

Germany has insisted the IMF must join the programme, but it remains hostile to the idea of a debt haircut, as it is the biggest single contributor to a bailout that will exceed €180bn once the next loans are issued.

In a letter this week to Germany’s Frankfurter Allgemeine Zeitung, a top ESM official said it should be recalled that “the principle that nominal debt relief (‘haircut’) is not possible.”

Still, eurozone finance ministers agreed a year ago to discuss a range of other medium- and longer-term measures once Greece meets conditions set for the current programme. In Brussels this week, senior officials poured cold water over German reports that plans were already in motion to swap some the country’s IMF loans with cheaper ESM loans.

Athens has beaten its financial targets. The primary surplus reached 4.2 per cent of economic output in 2016, well ahead of the 0.5 per cent of GDP target for the year and even beating the 3.5 per cent goal for 2018.

The European official said a number of one-off events contributed to that over-performance. But bailout inspectors have comfort that structural reforms are starting to deliver results, saying this was confirmed by the broad over-performance across a range of tax revenue targets.

If Greece continues to meet the 3.5 per cent primary surplus goal, the pension and tax credit cuts will be offset by additional spending on welfare benefits targeting children and families, public investment and measures to support the labour market.

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