Greece May Extend “Spending Cutter” through 2019

Saturday, January 21st, 2017
Last Update: 19:21

Greece may extend the fiscal contingency mechanism until 2019 in order to restart negotiations with creditors over the bailout program review, Prime Minister Alexis Tsipras said on Friday.

The “cutter“, as the mechanism is called, will apply only in case fiscal targets are not met. Athens will have to proceed with immediate spending cuts if targets are not met. Spending cuts include slashes in pensions and salaries in the public sector.

Greece has agreed that the cutter applies through 2018. However creditors are not convinced that Athens will reach the targets required, based on state budgets proposed. Thereby, talks on the second review of the bailout program have stalled.

The differences between Athens and international creditors, other than fiscal targets, are on labor and energy market reforms, privatizations and debt relief measures.

Greece’s EU lenders require that the country achieves and maintains a primary surplus of 3.5 percent of GDP beyond the program’s end in 2018. However, the International Monetary Fund finds the target unattainable and proposes more austerity measures to be legislated upfront. Otherwise, the surplus will only reach 1.5 percent.

The IMF proposal has caused reactions from the Greek side, with several government officials asking that the Fund should withdraw from the program and make Greece’s bailout a purely European affair.

“The government cannot accept and legislate extra measures beyond 2018. It can only legislate the extension of the fiscal adjustment mechanism for one more year,” Tsipras said in a meeting with pensioners earlier on Friday, according to a statement from his office.

The Greek prime minister said that due to the dynamics of the Greek economy there will be no need for the cutter to be activated.

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