20 crucial days for Greece to complete 2nd review and cut debt

High-level talks between the Greek government and representatives of institutional creditors (the Quartet) are set to resume on Tuesday or Wednesday in Athens, with crucial negotiations actually commencing on Monday at the experts’ level.  

The roughly 20 days between the start of negotiations until a Dec. 5  Eurogroup meeting are decisive not only for concluding a second review of the Greek program (third bailout), but for the future of the crisis-battered Greek economy over the next two years.

As previously and extensively reported by both the local and international press, negotiations will aim to achieve a two-tier result: the first is completion of dozens of “prior actions” (milestones) in order to fulfill the second review. The second and more strategic goal on the part of the beleaguered leftist Greek government is some sort of tangible debt relief, regardless of when measures are implemented and under the condition that memorandum targets through 2018 are met.

Relief measures to ensure that the Greek debt is sustainable, in tandem with an agreement to reduce primary budget surplus targets as a percentage of GDP after 2018, will in turn, fulfill a major requirement set by the IMF to rejoin the Greek program as a lender.

On the domestic front, debt relief -- even in short-term form -- and an easing of primary budget surplus goals will hand the Tsipras government a palpable positive result of months of negotiations, one with which to counter its plummeting public opinion numbers.

Despite the fact that official contacts ended on Oct. 27 between top Greek ministers and the “Quartet” – Commission, ECB, SSM and IMF – talks continued away from the spotlight on all three “fronts” – prior actions, debt relief and primary budget surplus targets after 2018.

In terms of the 45 “prior actions”, major disagreements remain on the following issues:

• Creditors want a new regime for out-of-court settlement of non-performing loans (NPLs) to apply to large and medium-sized companies, and not to the very large number of self-employed professionals in the country, as Athens demands. The issue lies within the portfolio of the economy and development ministry. 
• Creditors remain unimpressed and unmoved by a Greek government proposal and subsequent alternatives to allow businesses to retain a “protected” bank account, i.e. a singular account with partial immunity from claims by third parties, including the tax bureau and social security funds. The disagreement is holding up draft legislation aimed to boost electronic transactions. Along those same lines, creditors also demand a highly punitive tax rate on previously undisclosed income, with the Greek government – rightly – replying that an exorbitant rate would doom any legalization process.
• Labor sector liberalization includes demands for an abolition of the right of unilateral recourse to arbitration, a freeing up of mass lay-offs and continuing the status quo in labor relations without mandatory collective bargaining agreements, at least until 2018. Creditors and the Greek side, which will now be led by the previous minister’s office director, 31-year-old Efi Ahtsioglou, have also discussed a minimum monthly salary scale for younger employees (under 25). Regardless, the labor sector issues entail the greatest threat for losing political “capital” by the leftist Greek government.
• Creditors also remain unconvinced over results from the current budget execution and forecasts for 2017. Athens steadfastly claims that the primary budget surplus for 2016 will hover above 0.63 percent, as foreseen in the draft. Finance ministry officials have pointed to the above-target collection of revenues to make their case, with a “cushion” of one billion euros available to off-set any target deviations in November and December.  

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