European Union Economic and Monetary Affairs Commissioner Olli Rehn said he’s confident Greece can meet its fiscal targets as Prime Minister Antonis Samaras said the country can’t accept across-the-board wage and pension cuts.
Finance Minister Yannis Stournaras met today with the troika, comprising representatives of the European Commission, the European Central Bank and the International Monetary Fund, who are back in Athens following a five-week hiatus. As he seeks to convince them that Greece is complying with its bailout terms, one disagreement involves the extent of fiscal measures needed to achieve Greek budget-deficit targets.
“Let the review resume and the Greek authorities now continue and even intensify their work,” Rehn said in Brussels today. “I’m sure that we will be able to find a satisfactory solution as regards to how to ensure the fiscal gaps will be filled and the fiscal targets will be met.”
Greece is in the sixth year of a recession that has destroyed about a quarter of its gross domestic product and sent the unemployment rate soaring to almost 28 percent, the highest in the euro area. As labor unions prepare to hold a general strike tomorrow against austerity measures tied to Greece’s 240 billion euros ($324 billion) of bailouts, Samaras has staked his credibility on avoiding more across-the-board cuts to wages and pensions.
Today’s talks were “good” and focused on structural reforms and banks, a Greek Finance Ministry official said, speaking on condition of anonymity because the discussions are ongoing. Talks between the Finance Ministry and the troika will resume Nov. 8.
The European Commission today released updated forecasts for Greece, seeing economic output expand 0.6 percent in 2014 after shrinking 4 percent this year. The country’s public debt ratio will peak at 176 percent of GDP this year, while this year’s budget deficit will be around 4 percent of GDP after one-time factors not included in the troika’s evaluation.
The yield on 10-year Greek government bonds rose 5 basis points to 8.02 percent at 1:59 p.m. in Athens today. The benchmark Athens Stock Exchange fell 0.8 percent, its third day of decline.
“Markets are not sure what to make of the latest standoff given the lack of transparency around the whole process,” Michael Michaelides, a rates strategist at Royal Bank of Scotland Plc in London, said in an interview. “Particularly since Greece has been beating fiscal targets since its deficit targets were made more realistic in November 2012.”
Samaras’s government presented a draft budget last month forecasting a surplus before interest costs of 344 million euros this year and one of 2.8 billion euros in 2014, or 1.6 percent of GDP. While that would qualify Greece for additional debt relief under the terms of a year-old agreement with euro finance ministers, the country disagrees with creditors over the size of cuts needed to realize next year’s projection.
“I don’t think there will be a conflict on this,” Samaras said in an interview on MEGA TV late yesterday. “If something more is needed, we can always find structural reforms which won’t directly touch pensions and wages.”
Greek officials say the 2014 fiscal gap is 500 million euros, in a worst-case scenario. They say it can be met through targeted changes to the social security system. The newspaper Naftemporiki reported Oct. 29 that the troika sees the shortfall at 1.2 billion euros.
A further sticking point includes the fate of two state-owned defense companies, which the troika wants closed, and progress in meeting targets for firing civil servants. Disbursement of 1 billion euros of bailout loans agreed to by euro finance ministers in July is tied to these measures, and Kathimerini newspaper reported on Oct. 23 the troika may delay the loan, which was due last month, until the second quarter next year.