Troika wraps up mini-review before September visit

The Troika of international lenders wrapped up a brief assessment of the Greek adjustment programme last week, leaving the coalition facing an uphill task to be ready for the inspectors’ return in mid-September, when a much more substantial review will take place.

The visit from the EU-ECB-IMF inspectors was an unusually low-profile one to review the pace of reforms and lay the ground for the more crucial audit of fiscal targets and funding gaps, when talks on further debt relief are also expected to begin.

A senior finance ministry official confirmed the inspectors’ visit had gone smoothly. “We had constructive talks, they wanted to take stock of where we are in terms of the (bailout) programme,” said the official.

The two sides held talks on privatisations, structural reforms to make the economy more competitive, tackling bad loans that are burdening local banks, and the state of public finances, although no major decisions were taken.

Apart from completing six “prior actions” to receive its next bailout sub-tranche of 1 bln euros in August, Greece also has to complete some 600 other, less significant, actions in time for the September review. Finance Ministry officials admitted that this is a tall order.

Reports indicate that in a bid to facilitate the September review, Finance Minister Gikas Hardouvelis will propose splitting it into two parts. According to his plan, the first should focus on the fiscal targets and structural reforms, while the other should concentrate on the funding gap, a report by MacroPolis.gr suggested.

However, the funding issue will depend largely on the outcome of the European Central Bank stress tests in October. Only then will Greece know how much, if any, of about 11 bln euros in recapitalisation funds remaining it will need to boost lenders’ capital adequacy. The rest could be used to cover the funding gap.

The government does not want the troika’s review to be held up by the funding gap issue because this would also mean a delay in starting official talks on further debt relief. Eurozone leaders will wait for the conclusion of the review before discussing how Greece’s debt load could be lightened. Hardouvelis, therefore, is proposing that the talks begin as soon as it has been established that fiscal and reform targets have been met.

Prime Minister Antonis Samaras is adamant that he will not agree to a third bailout and the conditionality that would come with it. He is fully aware that signing a new deal would carry considerable political cost at home.

The Wall Street Journal reported that the eurozone considering attaching terms to any debt relief package.

Aside from the Troika’s targets and the Eurozone’s demands, Samaras also faces the challenge of keeping an increasing fidgety PASOK on board in the coming weeks. Since the European Parliament elections in May, when the newcomer centre-left Olive Tree alliance got 8% of the vote, PASOK and its leader Deputy Prime Minister Evangelos Venizelos have become increasingly reluctant participants in the implementation of the adjustment programme.

The socialists have, for instance, publicly questioned the public sector mobility scheme and dismissal of civil servants. Greece has to fire another 6,500 civil servants this year but

is the junior coalition partner is opposed to this. PASOK is also pushing for individuals and companies who owe taxes or social security contributions to be given more time to repay their debts.

There is also visible scepticism within the New Democracy camp in the wake of the EU vote. The subsequent cabinet reshuffle saw a number of conservatives representing the socalled “popular right” enter the government and they have wasted no time in voicing concerns about further adjustment measures. The new Interior Minister, Argyris Dinopoulos, recently argued that his party would lose votes if it tries to hike taxes.

Also, the process of evaluating civil servants has stopped in its tracks because public administration officials are refusing to cooperate with assessors.

These are signs that there is concern within the coalition that the country will head to early elections in March next year, when the Greek parliament has to elect a new president of the Republic, and that the government should not rock the boat in the meantime.