Greece Eyes Path to Lifeline as Fiscal Resurrection in Doubt

  • Finance chiefs gather in Amsterdam to assess bailout progress
  • IMF's Lagarde questions accuracy of Greek economic data

Almost seven years after sparking the euro-area debt crisis, Greece faces a new budget confrontation with creditors amid fresh German warnings that its long-term success is far from assured and the International Monetary Fund raising questions about the latest economic data.

Finance ministers representing nations that use the euro are meeting in Amsterdam on Friday to assess Greece’s eligibility for more aid payouts under the country’s third bailout since 2010. A year ago, a similar gathering put the newly elected government of Prime Minister Alexis Tsipras on a collision course with Europe that almost forced Greece out of the 19-nation bloc.

A faction of the creditors want Greece to commit to further austerity measures in the event the nation doesn’t comply with the budget targets set out in its bailout program, an unpalatable proposition for the government in Athens that was elected on a promise to unwind the strict economic rules. While Greece doesn’t face an immediate threat of a return to the drachma, concern that the country can’t commit to fiscal rectitude and a mountain of debt are reviving questions about its long-term viability.

“I’m not sure it will work,” German Finance Minister Wolfgang Schaeuble, the most powerful minister in attendance, said this week in Berlin when asked about the outlook for Greece’s latest rescue. As he entered the meeting on Friday, Schaeuble said “it doesn’t look so pessimistic” on the short-term question of whether the Tsipras administration and creditors can reach a deal after months of talks on the release of another aid installment as long as there are “efforts by all sides.”

Budget Surplus

While poor governance skills, inexperience and a provocative style all combined last year to unify the rest of the euro area against Tsipras, concrete budget achievements, a more diplomatic style and a European migration crisis with Greece at its epicenter have given the government some leverage.

On Thursday, the European Union said Greece posted a 2015 budget surplus excluding interest payments and the cost of bank recapitalization of 0.7 percent of gross domestic product -- better than the target of a slight deficit set by the euro area and the IMF.

IMF Managing Director Christine Lagarde questioned the accuracy of the figures. “We’ve seen in the past, numbers being revised significantly over the course of the usual revision so we will scrutinize those numbers very carefully,” she told reporters as Friday’s meeting got under way.

The current review of Greece’s compliance with its bailout is already six months behind schedule, hobbled by disagreements over pension changes, income tax, state-asset sales, the management of banks’ non-performing loans and energy-market deregulation. The list of unfinished business includes items that date back to Greece’s original rescue six years ago.

‘Hot Greek Summer’

Whereas 2015 featured make-or-break meetings of European leaders because their more junior ministers were unable to agree on a Greek accord, creditors have warned Tsipras they are determined to prevent the matter from returning to such a high political level this year, according to an EU official. That puts the spotlight firmly on the finance chiefs including Schaeuble, who last year caused a stir by suggesting Greece would be better off leaving the euro.

“No one wants to head towards a hot Greek summer again,” Finnish Finance Minster Alexander Stubb said. “The two key issues there are whether they are still committed -- and with which figures -- to the 3.5 percent budget surplus in 2018 and the other issue is how ambitious the Greek government is on policy reform.”

The newest hurdle in the aid-disbursement talks is an IMF demand that Greece draft legislation on extra austerity that would kick in should the government miss future budget targets. These so-called contingent fiscal measures would be in addition to a belt-tightening package of 5.4 billion euros ($6.1 billion) over the coming three years.

The extent to which these measures would have to be enacted for the bailout review to close is a chief topic at Friday’s meeting, according to an EU official. While some finance ministers may take a tough line, the European Commission -- the EU’s executive arm -- endorses the Greek position that no such preemptive austerity should be necessary.

‘Obviously Doubts’

After losing about a quarter of its economy since the outbreak of the debt crisis, Greece is the only one of five rescued euro countries still reliant on international emergency aid. While that is an argument for more leniency to some in the euro area, it’s proof to a German-led camp that the pressure can’t be let up.

“There are obviously doubts -- if there were no doubts, we would have concluded a long time ago,” French Finance Minister Michel Sapin said. “Work is still ahead of us, but things are progressing very well."

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