Bank of Greece chief calls for lower primary surplus, bigger reform effort

With a tentative debate under way on relieving Greece’s debt load, Bank of Greece (BoG) Governor Yannis Stournaras on Friday called for Greece’s primary surplus target for 2018 to be lowered from 3.5 percent to 2 percent of gross domestic product, saying such a move could lighten Greek debt significantly.

In a speech before the Federation of Industries of Northern Greece, Stournaras said changing the budget target would help provide the Greek economy with a much-needed boost “without undermining the sustainability of the public debt.”

His proposal for a 2 percent target in 2018 is one-and-half percentage points less than the target set by Greece’s eurozone partners and just above the proposal of the International Monetary Fund, which has recommended a target of 1.5 percent or additional belt-tightening measures.

According to the BoG calculations, lowering the primary surplus to 2 percent could cut Greek debt to below 100 percent of GDP in 2030 and to 89 percent in 2035 if the move is combined with easing future interest rate payments on bailout loans over 20 years and extending loan maturities by 22 years.

Stournaras, who was finance minister under the previous conservative-led coalition, called on the current administration to focus on enforcing reforms once the current bailout review is completed and to pay attention to tackling a mountain of bad loans weighing down Greek banks and kick-starting a lagging privatization program.

“These actions will have a positive impact on the international markets’ assessment of the country’s prospects and will lead to a virtuous cycle that will mark a definitive exit from the crisis,” he said.

Greece has lagged other European countries with similar debt problems in reforms largely due to weaknesses of the political system and vested interests, he added.

Negotiations are under way about the next round of reforms that Greece must legislate to unlock fresh rescue loans.

They include the creation of a new privatization agency, new regulations for the management of bad loans held by Greek banks, and the introduction of an automatic mechanism for cutting spending if Greece misses its budget targets.

A European official indicated that the next tranche of rescue loan funding will be “between 9 and 11 billion euros.” Originally the amount earmarked for the completion of the review had been 5.7 billion euros but that sum will be supplemented so that the Greek state can pay arrears to suppliers.