FinMin says cut-off mechanism beyond 2018 considered

As the backlash with international creditors over the government’s unilateral announcement of a Christmas bonus to low income pensioners begins to subside, the government’s focus is now back on wrapping up the second review of the country’s third bailout and on the terms set by the International Monetary Fund (IMF) to participate in the Greek program.

In an interview with Kathimerini’s weekend edition, Finance Minister Euclid Tsakalotos reveals that the government would, within the context of a compromise, extend the fiscal correction mechanism beyond 2018 when the Greek program ends. He adds that it is possible even now to describe what expenditure areas the fiscal correction mechanism would target if the IMF’s prediction that 3.5-percent primary surplus target will not be met with the current agreed measures is confirmed. Nonetheless, he categorically rules out that any such measures will be implemented now.

The finance minister, moreover, stresses that the government rejects the interventions been proposed by IMF officials, namely reducing the tax threshold and slashing current pensions.

Tsakalotos is critical of the Washington-based fund due to its mistaken predictions in the past and its determination to push for Greek debt relief. He also suggests that the IMF could stay on as a technical adviser without compromising the bailout program.

He also stresses that despite the difficulties it is facing, the leftist-led administration is not considering recourse to the ballot box.

Bonuses and dilemmas

You distributed the bonus from the over-performing surplus solely on the basis of income from pensions. This means that a pensioner with other revenues like rent got additional assistance but an unemployed person did not. How left-wing is that?

You will always face such dilemmas. It’s the same dilemma faced by the courts: Is it better to have a strict system that may ensnare an innocent person, or a more lenient system that runs the risk of letting a guilty party off the hook?

Our problem was that from an administrative point of view it was easier to give to pensioners and spend the money in December so it would go down as in the 2016 budget expenditures, as this would not create any problems with regards to the program’s fiscal targets. We could have planned it better if we had more time. However, until the tax system is restructured, the asset register is completed and other measures to improve the tax mentality are implemented, we will continue to face targeting problems, though we hope to curb these over time.

You claim you will not agree to any new measures. However, in your letter to the creditors, you said that you would consider cutting pensions if the need arises and have also said that if there is an over-performing surplus in the future, it would be used to pay arrears and to create a cash cushion. Aren’t these new commitments?

Before the letter was published, we had officially stated that pensions will indeed be cut if we fail to reach the target of +0.5 percent for 2016, but also that we believe this highly unlikely. As for the second part of the question, the over-performing surplus would not just go towards debts and a cash cushion, but also to reduce taxes and strengthen social protection.

However, if in the future I have to choose between taking measures in favor of the vulnerable – be they pensioners, the unemployed or the socially excluded – and despite New Democracy considering this a “humiliation” (by the way, it’s a shame that a young politician like Vassilis Kikilias resorts to such terms) or, on the other hand, abstaining from voting on such measures just to be in the opposition's good books, I don't think I will face a serious dilemma!

The data show that revenues from the Public Investment Program (PDE) are falling short of targets. Coupled with the expense of the pension bonus, could the aim of achieving a surplus be in jeopardy? Is there any chance that you will be curbing PDE spending in order to prevent this from happening?

The budget shouldn’t be viewed in parts, because it is reasonable to assume that as it is implemented certain areas will over-perform and others will under-perform. The crux of the matter is that we have our minds set on the overall fiscal target. As for the data you referred to, the latest published figures regarding the budget’s implementation do not back your statement. In any case, the Finance Ministry is ready to respond to such an eventuality by setting in motion the required corrections.

The IMF is proposing smaller primary surpluses and greater debt relief. Instead of taking its side, you have been critical of its views and have agreed with the Eurozone on a larger surplus. Why is that?

The use of the word “agreement” as far as primary surpluses are concerned is peculiar. Besides, the IMF isn’t just talking about larger debt relief, it is also insisting on more fiscal measures. To paraphrase Oscar Wilde, its obsession with greater debt relief is talked about more than it is enacted.  

Do you believe the IMF wants to pull out of the Greek program? Could it participate as a technical adviser? How likely is it for EU member states to accept such a development and what repercussions could that have on the bailout’s credibility and on Greece’s efforts to return to international markets?


I really don’t know what the IMF wants – or whether it knows itself for that matter. There are many solutions to concluding the current phase of negotiations and one of these includes having the IMF primarily as a technical adviser. Ultimately, the markets know how to judge the program’s true credibility. Will investors have a clear and safe corridor to invest? Will we be included in the [ECB’s] quantitative easing program? Will the conditions allowing Greece to tap the international markets and leave the program be met? These are the big questions.

You are said to have told the last Eurogroup that if the IMF’s assessment – that 4.5 billion euros in measures will be required to achieve a primary surplus of 3.5 percent of GDP – comes true, that would spell the end of the program. It sounds to me like a warning of elections. In what case would snap polls serve as a solution?
 
We’re not thinking about elections but about how to secure the conditions to build on the improvements in the economy in the last two quarters. I described these above. In any case, I see a contradiction in the IMF’s claims. As the Oxford philosopher [J.L.] Austin says on the structure of argument: There’s the point when you make a promise (“we’re not asking for more austerity from Greece”) and the point when you take it back (“adopt measures of 4.2 billion euros, just in case”).

Would you consider, within the framework of a compromise, a reduction of the tax threshold or a reduction-abolition of the differences in pension rates? Would it be a solution to institute a new mechanism that would implement predetermined measures in order to secure fiscal targets for beyond 2018?

We have made it clear that we are not legislating measures now for after 2018. I’m not sure that this holds for New Democracy. In the exceptionally unlikely event that the IMF’s run comes to an end and one of its predictions comes true, we have said that we can outline what measure would be needed. Within this framework, we are also discussing a new mechanism, such as an extension to the Automatic Fiscal Adjustment Mechanism of the Budget.