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A 750 million euro deficit is delaying the agreement with creditors

01 March 2014 / 16:03:29  GRReporter
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The covering of the funding gap for 2014, which amounts to 730-750 million euro, is the biggest obstacle in the negotiations between the Greek government and the Troika and was the main topic of yesterday's meeting of representatives of creditors with representatives of the Ministry of Finance, who expressed doubt that the agreement will be reached by the Eurogroup meeting on 10 March.

During the meeting, the Troika brought to the table all the financial liabilities which exist in the financial adjustment programme. These include: a deficit of around 300 million euro from the imposition of the single property tax, 300 million euro in 2014 from the application of the lower VAT rate for hotels, as well as the expectations for revenues in the current financial year, given that the rates of tax collection, represented by the Ministry of Finance, continue to be doubtful.

A senior ministry official attributed the delay for 2014 to the fact that the Ministry does not yet have the final data for February – the month in which the 14-month financial year ends. And the budget surplus cannot be determined without these data.

During the meeting, representatives of the Troika recognized the primary budget surplus, although it has not yet been officially determined. In parallel, they asked the government not to hurry to allocate it. They stressed that the government must have available financial funds in any case in order to cover losses from court decisions on the repeal of the financial measures of the memorandum, such as the recent decision on the remuneration of uniformed staff.

The cost of the loss of funds in insurance funds will be covered by the primary surplus. The choice of the Greek side for the application of the measure as of the middle of the year will balance this cost, since the measure will apply for 6 months only and will amount to 250-300 million euro, and not to 600 million euro, as the Ministry of Labour had calculated if the measure was applied from the beginning of the year.

Another major topic was also mentioned at the meeting, but it was not discussed in detail - the necessary changes after the tools of the Organization for Economic Cooperation and Development for the operation of services and products have been used.

The Greek side, with as main negotiator the Development Minister, is trying to convince creditors to immediately exclude milk and non-prescription medicines from the package of changes for immediate application, offered by the international organization.

In order to reach an agreement over the next 10 days, two major fronts which opened in September should be closed. The first one includes the issue with banks. During the meeting of creditors with the management of the Bank of Greece, the Troika accepted the reduction of the core Tier 1 from 9% to 8%, but asked the 4 largest banks to make higher estimates regarding "red" loans.

Higher estimates will increase the additional capital needs to 7.5-8 billion euro, depleting almost the entire stock of the Financial Stability Fund. The topic is expected to be closed next week after mutual concessions.

The second issue includes changes in the public sector which are delayed. On Friday, the Troika asked the Minister of Administrative Reform Kiriakos Mitsotakis for the preparation of binding schedules for 12,000 lay-offs which must be carried out by the end of the year, as well as for the gradual implementation of the second wave of the “availability mode”. This issue should also be closed next week.

Kiriakos Mitsotakis,

''The thorn'' in the foot

The two sides did not reach an agreement in terms of the civil servants (1,600 in total) who will remain in the public sector with judicial decisions. The Troika wants to include them in the number of lay-offs, since it believes that they have to leave the sector anyway.

Sources from the Ministry of Administrative Reform believe that the Troika will still include them in the total number of laid off.

85% of the target has already been achieved - 25,000 laid off, and the measure includes 21,000 civil servants.

Outstanding issues in the public sector

The two sides have reached an agreement that the programme for the reduction of the public sector is on track. The Greek side, without having met the target of 4,000 laid off in 2013, has transferred the remaining 400 to the target for 2014, and in this way the target becomes 11,400. The date for the completion is the end of the year, with no intermediate deadlines.

The ministry sat at the negotiating table with 2,700 doctors less. Other issues have also been taken into account, such as the acceleration of disciplinary penalties, the reduction of the administrative burden and simplification of procedures, the reduction of bureaucracy, as well as the assessment of civil servants. A bill on this issue will be submitted to parliament next week.

Of course, the Troika was more "understanding" this time, since it took into account the wider political situation, and especially the upcoming elections, the outcome of which is expected to be a key factor in any changes and therefore can seriously affect each programme.

The next meeting of the leadership of the Ministry of Finance with the Troika will be on Sunday afternoon.

Tags: Troika creditors agreement meetings Kiriakos Mitsotakis deficit
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