Athens works on contingent fiscal plan to satisfy lenders and complete review

Government officials spent the weekend trying to decide how to identify another 3.6 billion euros in fiscal measures demanded by Greece’s lenders in order to complete the drawn-out bailout review, secure more funding and trigger a discussion on debt relief.

Greece was told at Friday’s Eurogroup that it would need to legislate more measures on top of the 5.4 billion euros, or 3 percent of gross domestic product, it is close to agreeing with the institutions. The extra cuts, amounting to 2 percent of GDP, would only have to be implemented if Athens is not on course to meet its 3.5 percent of GDP primary surplus target in 2018.

Finance Minister Euclid Tsakalotos suggested after the meeting that there is no provision in the Greek Constitution for legislating contingent measures. However, sources said that one way around this may be for the government to use the Fiscal Policy Council, which was created last year and is responsible for monitoring whether ministries are keeping to their budgets.

The government is believed to favor the option of allowing the council to cut ministry budgets by 5 percent if the primary surplus target is not being met, rather than having to agree with the creditors over the next few days the exact 3.6 billion euros’ worth of measures that could be implemented to ensure the goal is achieved.

This is thought to be an easier political option for the government as it would avoid provoking reactions over specific measures from within SYRIZA. It would also give Athens a chance to complete negotiations in the next few days, achieving a so-called Staff Level Agreement and forcing its creditors to launch a discussion on debt relief steps.

Eurogroup President Jeroen Dijsselbloem said that another meeting of eurozone finance ministers could take place on Thursday if there is an agreement by then. It is not clear if the institutions will accept the Greek proposal for stand-by measures.

Talks next week between Greek officials and the mission chiefs from the four lenders in Athens will also focus on the remaining differences relating to the original package of fiscal measures. A gap of around 70 million euros needs to be bridged on pension reform and there is yet to be an agreement on the tax-free threshold. There are also some details to be settled on the sale of non-performing bank loans.