Creditors to insist on residence protection system improvement

Greece’s creditors, and the European Central Bank (ECB) in particular, are determined to force Athens to improve the new framework for protecting primary residences from foreclosure so that its does not further exacerbate an already weak payment culture or reward tax dodgers, sources save indicated.

Just a week before next Monday’s decisive Euro Working Group meeting, which will establish whether there is an agreement on the system to replace the existing law – named after the former minister who created it, Louka Katseli – the issue remains open and the ball is in the Greek court. However, the ECB in particular “is in no mood for concessions and wants a proper deal to be reached,” European sources say.

The way the government is attempting to resolve this issue is not the only thing causing frustration among creditors, as evident from the recent reports by the European Commission and the International Monetary Fund. Several moves by Athens after the end of the program last August have raised concerns among the creditors that the government is going back on its promises and straying from the reform path in for the sake of its pre-election agenda. This is seen undermining the country’s growth prospects and threatening the fiscal adjustment, which is the only tangible benefit from the efforts of the last nine years.

Civil service hirings beyond the limits agreed and promises for even more, salary raises to employees at the ministries of Finance and Economy, and above all a hike in the minimum wage far above the productivity rate increase have annoyed the creditors, who stressed these points in their latest reports. Concerns were also raised by the extension of the value-added tax discount for the five eastern Aegean islands.

As Peter Dolman, the head of the IMF’s mission to Greece, said at the presentation of the Fund’s report last Tuesday: “We are concerned about the pressures the elections will exercise on policies.”

The eurozone’s strategy at this stage is to put aside disagreements with the government that are not related to the second assessment (such as the salary hikes and the island VAT) and insist on the 16 prior actions, particularly on the primary residence protection framework.