Greece and its international lenders agreed on Monday to let teams of experts work out new reforms to Greek pensions, income tax and labour market that would allow Athens to eventually qualify for more cheap loans, euro zone officials said.
Greece needs a new tranche of financial aid under its 86 billion euro bailout by the third quarter of the year to meet debt repayments, but the last mission to Athens broke down in acrimony late last year.
A Greek government official said extra reforms were to be fiscally neutral and take effect from the start of 2019, after the latest bailout ends in 2018.
Experts from the European Commission, the European Central Bank, the euro zone bailout fund ESM and the International Monetary Fund are to travel to Athens very soon, the head of euro zone finance ministers Jeroen Dijsselbloem said.
“There will be a change in the policy mix, moving away from austerity and putting more emphasis on deep reforms which is also a key element for the IMF,” he said.
The agreement is a compromise between conflicting views of the IMF, the euro zone and Greece as to how to make the economy more efficient and public finances sustainable.
The IMF believes that the pension system in Greece should undergo a deeper overhaul than so far, while Greece has flatly refused to have the reform reopened.
The euro zone has said that the reforms agreed so far were enough for Greece to meet and maintain its target of a surplus before debt costs of 3.5 per cent of GDP from 2018 onwards. The IMF, however, has said the current reforms would only produce a 1.5 per cent surplus and that income and labour market reforms were needed too.
The agreement on Monday left open how big a saving the new reforms would produce.
“I cannot put a number on it because the figures are still moving and some discussions on the figures are still ongoing, so the final figure of the size of this will have to be established during the review,” Dijsselbloem said.
“But what we have agreed now is to the liking of the IMF.”
Once the reforms were agreed between Athens and the lenders’ experts, the Fund would then make a new debt sustainability assessment for Greece to see how much debt relief was still needed, if at all.
The IMF now believes Greece needs substantial debt relief, while the euro zone thinks it does not.
“The issue of sustainable debt will come back when the whole package of reforms is agreed,” Dijsselbloem said.
“If the IMF can then say the budget will be sustainably on track on this basis and these reforms will support further recovery, then the whole analysis of the debt in the coming years will look a lot more positive,” he said.
The talks now appear set to continue during election campaigns in the Netherlands and France, which euro zone officials have said may make a final deal more difficult.
But euro zone officials said there was no rush because Greece had enough cash to see it through to July – when a 7.2 billion euro debt repayment with which it needs lenders’ help is due.
“There is no need for a disbursement in March, April or May,” Dijsselbloem said. “There is no liquidity issue in the short-run in Greece but we all feel the sense of urgency because of the key issue of confidence,” he said.
Dijsselbloem said that if the extra reforms agreed by the expert mission were to make Greece over-perform its fiscal targets, Athens would be able to put the excess back into the economy in economic growth enhancing measures.