Negotiations for the completion of the first review of the third bailout programme for Greece are approaching a critical stage, with the Greek government resisting some pension and tax changes, while creditors insist on credible and rigorous implementation. Differences are bridgeable within a couple of months, and a positive outcome would open the door for debt relief. However, there are risks related to the evolving political situation, the lack of ownership by the Syriza government, the still-large fiscal gap to be delivered, potential additional social unrest, the expected impact of fiscal measures on the economy and the outlook for potential growth over the medium term.
The first review of the third Greek bailout programme for €86bn started at the beginning of February in Athens. Negotiations between the Greek government and Greece’s international creditors (represented by the so-called “Quadriga”, the IMF, the Commission, the ECB and the ESM) should lay the groundwork for an agreement at staff level, which should then open the way for debt relief negotiations.
It is with a déjà-déjà-vu feeling and lots of mistrust that negotiations started with the usual noises, with the Greek government trying to put forward its red lines and creditors making tough statements (probably the toughest is the renewed threat of Grexit by German Finance Minister Schäuble). The impression is that without the usual drama we are not going anywhere, but time plays in favour of an agreement.