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Creditors push for additional austerity measures

Representatives of Greece’s lenders are back in town today to begin negotiations with the government. The aim is to reach a deal by the upcoming Eurogroup meeting scheduled to take place on Friday.

The Greek government sets its own terms for any further fiscal measures and says that this will be done only when the evaluation of the current program is completed and the discussion for easing its debt commences.
Greece’s creditors have agreed to press the country for additional austerity measures if it falls short of budget targets, a move that papers over disagreements between the lenders but could test the stability of Greece’s fragile government.
The IMF and the EU’s executive arm, the European Commission, agreed to reconcile their differing views on Greece’s budget outlook by demanding an extra austerity package of about 2% of Greece’s gross domestic product, or €3.6 billion .

The package of extra measures
The package would be triggered only if Greece falls short of targets over the next three years. But the proposals, which come on top of a list of austerity measures already being negotiated, would have to be passed into law now—posing a stiff test for the governing coalition of Prime Minister Alexis Tsipras, which has a majority of only three seats in parliament.
The extra measures could trigger a revolt in parliament, putting the survival of the government in doubt, the official said.
Greece is prepared to implement what last summer’s bailout deal requires, “nothing more, nothing less,” Greek government spokeswoman Olga Gerovasili said in a statement.

IMF-EU Commission dispute
The dispute between the IMF and the commission has stalled Greece’s bailout for months. The commission, with support from Greece, thinks that a list of measures including higher income taxes and pension contributions would improve Greece’s budget balance by €5.4 billion, giving the country a primary budget surplus (before interest) of 3.5% of GDP by 2018—the target set out in last summer’s Greece bailout plan.
But the IMF says those measures would only yield about €4.5 billion, and would leave Greece’s primary surplus at only 1.5%: two percentage points short of the target. To fill in the gap, the IMF wants an extra set of contingency measures worth some €3.6 billion.
European creditors have agreed to press for such contingency measures, but Europe and the IMF haven’t yet discussed specific policy demands. The IMF wants this part of the package to focus on pension cuts and eliminating tax exemptions, people familiar with the matter say. But all creditors know that those measures would be extremely politically difficult for Mr. Tsipras to sell at home, these people add.
A continuing dispute between the IMF and Germany over whether Greece even needs debt relief means that creditors may not even offer Mr. Tsipras any specific promises on debt relief. Officials on the creditors’ side say that debt negotiations between the fund and Berlin will start in earnest only once Greece has passed the full set of fiscal measures into law.
German Finance Minister Wolfgang Schäuble said in Washington on Friday that debt relief is “not necessary”—even in the form of a restructuring of Greece’s loans that doesn’t inflict outright losses on Germany and other eurozone governments.
But the IMF has repeatedly insisted that it can’t resume its own lending to Greece—which Germany wants it to—unless the eurozone gives Greece debt relief, at least by extending loan maturities and reducing interest payments.
Source: WSJ

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