Tsakalotos: Greece has means to make debt relief deal work

Greece has the capacity to finance itself unaided under a debt relief deal linked to its exit from an international bailout, but the agreement’s long-term fiscal targets may need reviewing, the country’s finance minister said.

As he prepares for meetings with investors in New York and Boston in coming days and in Asia in September, Euclid Tsakalotos said Greece had honored its promises to creditors.

The deal that euro zone finance ministers agreed in June to smooth next month’s exit from its third bailout offered clarity and reassurance to investors in Greece. That applied “whether we are talking about a 10-year government bond or whether we talk about foreign direct investment,” he told Reuters.

Tsakalotos took over in 2015 pledging to implement Greece’s third rescue package since 2010.

His euro zone counterparts agreed last month to extend maturities and defer interest payments on 96 billion euros worth of Greek debt, about one third of the country’s overall debt pile.

Greece has the highest debt-to-GDP ratio in the euro zone, at almost 180 percent of its national output.

“I had told them (potential investors) that all pieces of the puzzle would all come together … and they did,” Tsakalotos said, referring to a previous trip to the United States.

“(This time)… I just want to go through with them their views, my views, on why we should be much more confident on Greece after the 21st of August when we leave the program.”

More debt relief?

Asked if Greece would need further debt relief to sustain market access and to be able to service its debt in the long run, as the International Monetary Fund suggested in a report last week, Tsakalotos said that a 2017 promise by European lenders to do more if needed was a further safety net.

“As things stand now and if we have serious government policy from now on, which has sustainable growth and does treat our growth strategy seriously… then I think everything is in place for sustainability,” he said.

He said the government’s goal was to tackle the debt burden through reforms and sustained higher growth as well as relief measures.

Greece has so far exceeded its fiscal targets. But the country has committed to implement more austerity in the next two years and achieve primary surpluses – which exclude debt-servicing costs – of 3.5 percent of GDP annually up to 2022, and 2.2 percent of GDP from 2023 to 2060.

The IMF called those targets “very ambitious”.

Tsakalotos said that the level austerity is much higher than he would like but the issue could be revisited in the long run.

“The fiscal surplus, if you ask me as an economist, is too high,” he said. “The European economies in general have got a framework which puts too much emphasis on fiscal austerity.

“The Greek government will look at this and so will the finance ministers, to see whether the IMF is right, whether there is a problem with sustainability. I mean it’s an empirical question, not an a priori (one).”

Greece is set to beat its targets again this year, giving it leeway to distribute a fiscal dividend to those who need it the most. Tsakalotos’ team will shortly propose where the extra funds should be spent.

He acknowledged there should be better fiscal targeting and that reducing income and property tax was under discussion. Greece wants to reinstate collective salary agreements and increase the minimum wage, and may also cut social security contributions, he said.

“What is the real problem…is who pays those taxes that’s what we will be concentrating on, that’s why I said that we were perhaps thinking of reducing social security contributions. Because there are clearly quite a lot of self-employed and small businesses, who have been hit both by an increase in taxes and social security.” [Reuters]