Government backs down over ‘cutter’ beyond 2018

The government admitted on Tuesday that it would be willing to accept the activation of an automatic fiscal mechanism, dubbed “the cutter,” beyond 2018, if that ensures the stalled negotiations to wrap up the second review of the country’s third bailout program come to a swift conclusion.

The cutter forces the Greek government to take corrective action if it fails to meet its fiscal targets.

Describing its change of course from vehement rejection of the cutter to its acceptance, government spokesman Dimitris Tzanakopoulos tellingly described it as a “concession” and “compromise,” rather than a tactical maneuver.

The leftist-led coalition sought to justify its latest concession as a necessity to overcome the objections raised by the International Monetary Fund, which insists Greece needs tougher measures to meet its fiscal targets.

However, the government insists it will not need to activate the cutter as it will meet its fiscal targets, contrary to the IMF’s predictions.

The move has come in tandem with a growing realization that the negotiations to conclude the second review are at an impasse, and the prospect of further delays would surely damage the government’s bid to join the European Central Bank’s quantitative easing mechanism (QE), begin substantial debt relief talk and access international markets in 2018.

Publicly, the government had recently struck a defiant tone, saying it was in no rush to conclude the review, as its financial needs are covered for the coming months.

However, the brave face it put on was met with a similar show of defiance from the country’s international creditors, who responded that they are in no hurry either, essentially forcing the government to blink first and move away from the narrative that said, “We have fulfilled our side of the deal and we accept no more demands after the third bailout program ends in 2018.”

The tactical change also has to do with the fact that if the review is not concluded by early March, when several European Union countries head to the polls, then a decision could be pushed back to June at the earliest, something which could deal a fatal blow to the economy’s recovery prospects.

Finance Minister Euclid Tsakalotos will seek to make use of the government’s turnaround to accept the cutter beyond 2018 at the Eurogroup on January 26 in order to get the review negotiations back on track.