Naftemporiki — Greece sold 3 billion euros of bonds this week for the first time since 2014, rolling over the bond that the previous government had issued in 2014.
The bond issue was hailed as a success by Europe and the government of Greece and was described as a turning point and as a sign of the success of the austerity policies the lenders imposed.
The IMF however, consistent with its position of asking for lower primary surplus targets and debt relief, was more cautious, highlighting some of the outstanding issues in the next evaluation of the bailout programme.
In an interview with Greek financial daily Nsftemporiki, IMF’s Mission Chief for Greece, Delia Velculescu emphasized that whatever financing is raised from the markets should not increase the country’s debt. Rather, she stressed, the goal of new paper should be to smooth over “debt repayments due after the program period.”
At the same time, she warned that a reliance on high tax rates is hindering investments in the capital-starved country.
Velculescu echoed the standing IMF “formula” for jump-starting the Greek economy: expand the tax base, and reduce spending on pensions in favour of lowering tax rates.
She also underlined the IMF’s position on lowering primary budget surplus targets, as a percentage of GDP, to around 1.5 percent “as soon as possible“.
A demand by European creditors – especially Germany – for high Greek fiscal targets has met with the IMF’s dogged opposition. Although Athens had to agree to high primary budget surplus targets, its position on this issue is more aligned with that of the Fund.
In terms of priorities for concluding the upcoming third review of the Greek bailout program, she pointed to pending issues dealing with temporary contract workers in the country’s public sector as well as a clearance framework for arrears owed by the state to the private sector. Other priorities for the third review, due in the autumn, are better management of non-performing loans in the country, along with ensuring systemic banks’ “adequate” capitalization and still imposed capital controls – a leftover from the turbulent summer of 2015.
She also mentioned another two thorny issues that the Fund has long considered “landmarks” in efforts to liberalize Greece’s economy and to curb the state’s control, i.e. rolling back prohibitions on Sunday retail shopping and opening up so-called “closed occupations”.
In reference to Greece’s social security system, Velculescu detailed the IMF’s position of an unsustainable model, saying contributions by working generations cannot sustain current pension rates. In fact, she reminded that the social security deficit in the country is nearly four times the Euro zone average.
Asked about the Greek debt, a highly politicized issue that was in the media spotlight for much of the past month, Velculescu said the problem lies in the long-term outlook, essentially after Greece ceases borrowing with the ESM’s favourable terms and starts relying on money lent with the markets’ decidedly higher interest rates.
Finally, asked about the ECB’s Quantitative Easing asset-purchasing program and Athens’ standing desire to rejoin the stimulus mechanism, she said, among others, that “…it is not essential in order for Greece to sustainably return to markets” assuming that all the conditions set out by the lenders were met.
