By Vassilis Kostoulas
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The head of the EuroWorking Group Thomas Wieser pointed directly to last December’s abrupt announcement of a 617-million-euro “holiday bonus” by the leftist Greek government for 1.6 million pensioners as recently straining relations with institutional creditors.
“The way this was handled, and the measures which were chosen, led to a very difficult situation in December. It may influence how some people look at the quality of measures that will be discussed,” Wieser told “N” this week.
Along those lines, the US-born Austrian economist said the Greek government must overcome any impressions that it does not honor its commitments, statements that coincided this week with the return of creditors’representatives to Athens for renewed negotiations.
The powerful Eurogroup Working Group (EWG) president’s comments came hours before his arrival in Greece to attend the 2nd Economic Forum in Delphi.
Furthermore, Wieser said he does not rule out the possibility of «compensatory» measures.
“If it turns out that Greece indeed over-performs its fiscal targets, then indeed the compensatory measures would kick in and could be of an important magnitude,” he added.
Wieser also said employment targets in Greece’s cavernous public sector must be respected, whereas finally concluding the second review of the Greek program takes precedence over medium-term interventions for the Greek debt.
What is the timetable from now onwards? In which Eurogroup meeting is a final agreement realistically possible?
I await the agreement between the Greek authorities and the 4 institutions on policies. Technically, this could happen fairly quickly. But this is in the hands of those who are negotiating. Once this is achieved we will need some time to prepare for the political discussion and, hopefully, agreement. The next
Eurogroup, on 20 March, is already quite close. A very good outcome would, in my view, be if we could see that there was already agreement on policies with the institutions.
On which specific issues should the institutions and the Greek government bridge the distance;
There are a number of issues which are of importance. I am thinking of course of the issue of fiscal policies – also beyond the end of the program. This also entails agreeing on reform measures that support a growth oriented fiscal policy. It will also mean that one needs to agree on the quality of the so-called expansionary measures: they need to support growth in an economically sound manner. And this also means that public sector employment targets need to be honestly respected.
Coming finally to a real solution (not just on paper) on the issue of energy policies is of the essence: the Greek population should be able to see – after many attempts have not succeeded – the benefits of structural measures that increase competition. Policies and actual administrative measures that help, instead of hindering private sector investment will strengthen growth and employment; this includes issues also in the area of privatisation where recent developments have not been encouraging.
Labour market policies will also form an important part of discussions, even though the programs have already produced quite important changes in the past.
Is the reduction of the limit of the nontaxable income and the cutting in spending for pensions structural reforms or fiscal measures?
These may be matters under discussion in the coming days. But broadening the tax base is under all circumstances positive in itself, as is a sustainable and equitable pension system.
The Greek government is seeking for compensatory measures which will render the final result “fiscally neutral”. How likely do you consider such a development, and under what conditions could these measures be applied?
Recent developments in the Greek budget have given rise to hopes of a sustainable improvement in the fiscal situation in Athens. The technical experts of the Finance Ministry and the institutions should discuss how much of this is indeed structural. If it turns out that Greece indeed over-performs its fiscal targets, then indeed the compensatory measures would kick in and could be of an important magnitude. Personally, I would think that they would need to provide the basis for future growth and competitiveness. This may indeed make the difference between a high and a low future growth path.
Do you think it possible for the reduction of the limit of the non- taxable income to be accompanied by a reduction in tax rates?
As I said: this depends on the joint analysis of fiscal forecasts. If this turns out as hoped then there is also always the question of which taxes one would want to consider. Here again there are measures which would do little for growth, and measures that would be good for growth in the medium term.
More generally, the measures should contribute to bringing Greece on its own feet again e.g. by increasing the growth potential and thus, allowing Greece to return to the markets on favourable terms.
When will the medium-term measures for the Greek debt be defined? Immediately after the completion of the second evaluation or right after the end of the program in 2018?
This will be part of the discussion in the Eurogroup once there has been agreement on policies. As you know, there has been a quite precise statement on this in May of last year which is already quite specific.
Will a political commitment of the institutions (that at the end of the program in 2018 the medium-term interventions on the Greek debt will be examined and defined) be enough for the accession of Greece to the QE of ECB? Or is something more needed?
For this you will need to ask the ECB – where colleagues will tell you that this is up to the Governing Council to decide. Debt sustainability obviously is a determining factor.
IMF does not disburse money to Greece, because the medium- term measures on the Greek debt have not yet been defined. However, IMF is actively participating in the Greek program, setting its own terms for the second evaluation. Does this create any problem in the process, or would you say that it is a viable state by the end of the program in 2018?
I am confident that the IMF is actively working towards an agreement that would let staff and management propose a programme to its Executive Board.
Have the relatively recent benefits of Alexis Tsipras to the pensioners and the islands receiving refugees and immigrants, without prior consultation with the institutions, somehow influenced the negotiations on the second evaluation of the program?
Expenditures should have in mind the long run benefits to the Greek population. The way this was handled, and the measures which were chosen, led to a very difficult situation in December. It may influence how some people look at the quality of measures that will be discussed.
What I would also want to stress is that there is a wide spread perception, right or wrong, that many measures agreed and legislated in recent years are not being implemented. It would be good if one could rapidly dispel this notion which is obviously not good for the Greek economy and society.
If the second evaluation is not completed by the summer, is there time for the timely completion of the program and the return of Greece to the markets? Or will a new program be needed?
I am sure that the second review can be completed well before the summer.
