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Creditors left Athens empty-handed

21 September 2012 / 21:09:35  GRReporter
2355 reads

Victoria Mindova

The Greek government and the representatives of the International Monetary Fund, the European Central Bank and the European Commission have failed to agree on a final version of the fiscal consolidation programme for the next two years. The heads of the mission Paul Thomsen, Claus Masuch and Matthias Morse left Athens without an agreement and they gave Greece a week to draw up a final plan. Meanwhile, the technical team of the supervisory mission is remaining in Athens. It will be working with the relevant ministries to see how Greece will save more than 12 billion euro by the end of 2014.

Sources in the finance ministry said that 11 billion euro would come from the reduction of budget spending and about 2.5 billion euro will enter the treasury after the reform of the tax policy under the second Memorandum. Although the package is clear in general, the same ministry officials told journalists, "There will be a list of specific measures neither today nor tomorrow. That is more than 11 billion euro - this is not an easy task."

The Greek Ministry of Finance stressed that the objectives have not been changed so far. The supervisors will complete the report by the summit of euro zone finance ministers on 8 October, those familiar with the matter claim.  The aim of the Greek state is to complete the package of measures for fiscal consolidation in a form acceptable to both Athens and the creditors by the time the Troika returns. The next meeting of pro-government party leaders will be on Thursday, 27 September. The heads of the mission will return to Athens at that time.

The pitfall in the current negotiations is how the Greek government will ensure that it will meet its obligations in case of deviations from the programme. The measures the Troika considers imaginary and which may not give the expected result are the cuts in the budgets of the Ministry of Defence, local government organizations and healthcare. The government promises to save the budget up to 2.5 billion euro with them.

The Ministry of Finance said that creditors now want to specify the additional measures that must be applied if Greece fails to reduce the budget deficit, according to the plan of the programme. These measures will probably be the most unpopular ones - another cut of pensions and salaries.

In the course of Yiannis Stournaras’ last meeting with the representatives of international creditors that week, there was a slight commotion in the corridors of the Ministry. Reuters’ news that the report of supervisors should not be released before the U.S. presidential election on 6 November this year was shocking. The concerns were that the results of the inspection might be so poor as to undermine the macroeconomic balance of the global economy, Greek journalists speculated.

When the leaders of the creditors' mission heard the rumours, they were quick to refute them. "The Troika denies this information," representatives of the office of Yiannis Stournaras told reporters while the Minister of Finance was meeting the representatives of creditors. After the two-hour meeting, the head of supervisors from the European Commission Matthias Morse himself said that Reuters’ news was not true. "It's not true", was Morse’s only reply to reporters during his entire stay in Athens.

The scenario that the report on the Greek economy will be delayed has been on the agenda since the extension of the stay of supervisors. The Ministry stressed that the package should have clarified in June this year, as agreed with the signing of the second Memorandum of financial aid. The two electoral rounds and the organizational delays of the government left little time to finalize the package of fiscal consolidation. Negotiating its final version will open the door to the payment of the next tranche to the value of 31 billion euro. 24 billion of which is intended for the recapitalization of banks and the remaining 7 billion will fill the holes in the budget.

Tags: EconomyMarketsTroikaCreditorsGreeceFinancial aid
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