Centeno considers post-bailout landscape for Greece, IMF role in interview with Kathimerini

A few months before the scheduled expiry of Greece’s third international bailout, in an exclusive interview with Kathimerini, Eurogroup President Mario Centeno called on Greece to stick to economic reforms and talked about the post-bailout landscape, the implications of “enhanced supervision” and the significance of the International Monetary Fund’s participation in the Greek program.

For Greece and its creditors to reach a deal at the June 21 Eurogroup meeting what needs to happen until and what should we expect from the May Eurogroup?

The key date we need to work with is August 20, when the program ends. Bear in mind there are parliaments that go into recess in the summer. This is why June is critical. Every single week until June 21 is important.

My focus is on pushing us all to deliver as soon as possible.

Greece needs to implement the 88 prior actions and the next mission will be a step toward closing the review. That will lead to the final disbursements and determine under what conditions Greece will be exiting the program. We have to make all possible efforts along the lines we said before to allow the IMF to be on board. That should be clarified in the course of May. The IMF is joining the mission and producing its DSA (debt sustainability analysis). I expect the May Eurogroup to be an important event and date toward an agreement on debt measures.

A successful exit from the program is one condition for more debt relief. Another is that further measures are needed to make the debt sustainable.

We are talking about a package. It needs to be credible to creditors, to investors and to the Greek people. They will live with it in the years to come.

Why have debt talks not progressed more?

We are not starting from scratch. This is another step in a long process, in which the EG has committed substantial debt relief. Since 2016 we have implemented measures that will reduce debt/GDP by 25 points in 2060. We have committed to considering more debt measures at the end of the program, if conditions are met. If still needed, in the future we may even consider additional long-term measures. All these measures are identified.

I want to stress that recent numbers are promising. The Greek primary surplus in 2017 is 2.5 times larger than what was envisaged in the program. This is reassuring and will be taken into account.

We might have a primary surplus 2.5 times larger than expected but that happened while growth shrunk. That high surplus was not actually the target for this year. Is that something you take into consideration?

We need to have a balanced view about primary surpluses and growth and reflect that in the design of the DSA. Growth has returned to Greece, but this is going to be a long process. I am very confident that Greece will be able to deliver on it. It is in the interest of the Greek people that the economy grows in a sustainable way.

The growth strategy that has been presented has some elements that stand out such as the restoration of “collective bargaining” in the labor market and a “gradual increase in the minimum wage.” Does that worry you?

At face value, this long-term growth strategy fulfills a requirement that is dear to me: Greece needs to take full ownership of the reform progress. I know that in Greece the word reform is not seen in a positive light. Given the length and impact of the adjustment that is understandable, perhaps. But we need to understand the relevance of this for the future of Greece – long-term growth potential is of utmost importance.

Are you worried about backtracking?

I am not fond of the notion of backtracking because the need for policy-making does not end with the program. What must not happen is a return to the unsustainable policies. What is key is that future policies expand Greece’s growth potential. We need to be very clear with Greece about that.

Even though there are measures that don’t seem to go to that direction?

Managing the economic situation of a country is not like running an algorithm. Politics is involved and one key lesson for the Greek experience, which was important in Portugal, is that the reform and growth momentum must be able to resist political cycles. All political actors in Greece should understand this message: For the sake of enhancing potential growth this momentum must be resilient to the political cycle.

How binding is the growth strategy for the next government?

There are always alternatives, but we need to be very clear about what we aim for. Policy choices should be set out clearly. Having said that, I would like to see broad support for this plan. It would enhance Greece’s credibility going forward.

The third program has almost been completed without the participation of the IMF. Why do you think it’s so important to have the IMF in the last stretch?

The Eurogroup goal is for Greece to have a credible, sustainable and successful exit strategy. If the IMF can add something to these dimensions that would be very welcome. The IMF has been supporting Greece since 2010. So it would be helpful in terms of credibility and market confidence to continue this work in the future. It is not a financial issue, it’s a continuation of the process. This is the crucial part. Last year, the IMF approved a program, in principle, for further financial assistance to Greece. Let’s see how they will follow that up. For some of our member-states full IMF participation is very important.

ECB Executive Board member Benoit Coeure said last week that there should be a strong post-program arrangement – the stronger the better. What do you think would be a credible post-program arrangement for the markets?

A strong post-program arrangement will be one that allows Greece to achieve a successful exit, with market access and a strong domestic commitment to implement an economic and financial plan. In short, it is one that allows Greece to stand firmly on its feet after August 2018.

The Eurogroup will continue to support the reform process and have a monitoring process that is framed under the Two Pack framework and other EU regulations. We have post-program surveillance in Portugal, and we have offered to help Greece get ready for this new phase of the program.

After the program ends you will still receive the institutions on a regular basis. The idea will be to monitor the execution of policies, which will be framed under the growth plan the Greek authorities presented, and will be updated on a regular basis.

You refer to visits on a regular basis by the institutions. Can you be more specific?

It’s not very clear yet. The post-program monitoring in Portugal includes biannual visits. In the case of Greece, the Commission will reinforce this with an instrument of enhanced surveillance. This has never been used in the past. It may involve more missions than in Portugal. Minister [Euclid] Tsakalotos mentioned three or four times, instead of two. But this still needs to be defined.

Greece is a different case from Portugal and other countries that had bailout programs since it is asking for debt relief that those other countries didn’t request. Will the surveillance be tighter with more conditions attached?

Enhanced surveillance will imply tighter monitoring, which is also justified by the fact that debt relief will outlive the program. The policy conditions are the ones I mentioned earlier. There are commitments made during the program, on the long-term growth plan and on the future DSA. The implementation of these commitments will lie and rely only on the Greek authorities and that is a big difference from the program period.

Germany is considered to be one of the main opponents of Greek debt relief. Do you feel Berlin’s stance has softened after the appointment of the new German government?

In Germany, the Greek issue is a hot topic. It is discussed in greater detail than in any other countries outside Greece. Germany is the largest country in the euro area and the largest contributor to the assistance to Greece. In the Eurogroup we are all committed to supporting a successful exit from the Greek program. In that sense I don’t see a big change on the part of the new German government on this issue.