Tricky agreement for Greece
by Alberto Paez and João Texeira
On Friday's Eurogroup (7.4.17) there has been an initial agreement between the Greek government and the creditors on the fiscal policy mix that will be implemented after the end of the current bailout, i.e in 2019 and 2020.
The initial agreement can be considered as "balanced" as in nominal terms, it brings net fiscal outcome, including additional austerity cuts but also off-set measures. The finalization of this agreement is expected to take place by the end of the coming month, after the specification of mid-term debt relief measures and the post-2018 level of primary surpluses.
For the moment, nothing is certain, as both the IMF and the German Finance Minister Mr Schauble cannot be regarded as credible interlocutors. In the meantime, it is interesting to follow what conclusions the IMF Summit in late April will make over Greece's debt sustainability and whether further cuts might be requested so that the Fund can step in as a lender in the Greek program.
The key question for the European institutions is to acknowledge whether keeping up with the IMF on board is beneficial for Greece and the cohesion of the monetary union and, thus, of Eurozone. IMF seems to be a destabilizing factor that creates confusion and collision among Eurozone member-states. After six years of solid experience in bailout programs, Eurozone must convince that it has the capacity and know-how to deal with its own issues collectively, without any external "patron". Essentially, it has to prove that it can overcome the financial crisis successfully, and avoid getting trapped into the same, devastating vicious circle.
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Alberto Paez and João Texeira are Policy Analysts at Bridging Europe.
April 10, 2017