IMF and EU leak drafts of the Greek bailout agreement

By Yannis-Orestis Papadimitriou

ATHENS — Two documents leaked to the press in the last few hours seem to suggest that the Greek government’s negotiations with the IMF and the European authorities are heading towards a temporary end, achieving an agreement that would meet the conditions for receiving financial assistance from the European Stability Mechanism. In the context of the negotiations, it is the second leak in a few days, following that of a private conversation between the IMF’s chief representative in Greece, Delia Velculescu, and her superior, Poul Thomsen, in which they contemplate on their future actions pertaining to the third bailout.

The documents consist of an outline of the new set of measures that the IMF believes the Greek government should implement upon signing, as well as a draft version of a technical “Memorandum of Understanding” penned by the EU, that goes deeper into the obligatory structural reforms and their deadlines. For the most part, the texts specify the policies agreed by Greece and its lenders after the referendum last summer, which were voted in Parliament in August with a majority of 222 MP’s. Since then, an attempt to draw tax and pension reform plans has been met with wide social protest, while the Greek government has adjusted to a new strategy, aiming to exclude the IMF from the program and focusing on a possible debt relief that would allow for it to be deemed viable. The IMF’s inclusion is made clear in the papers, but a debt write-off remains a possibility and the size of it is connected to that of the bailout loan.

The conditions for receiving the loan see to a reduction of the deficit of 2016, equivalent to 0,75% of Greece’s GDP, through revenue generated by the upcoming measures. Actions that have already been announced are particularized in the documents (as is the case with the tax and pension reforms mentioned above), while new ones also appear, that have not been discussed in public before. A special emphasis is given on revenue collection with the establishment of an independent revenue agency, contrary to the government’s previous plans for it to be supervised by the Ministry of Finance and in the context of safeguarding financial stability, the Bank of Greece will be granted additional supervisory powers over Greek banks, including the monitoring of solvency and liquidity and the assessment of their performance. Several actions will be taken towards a resolution for non-performing — aka “red” — loans, which will be personified according to each debtor’s capability to pay, assisted by a framework for handling larger debts and a plan of reductions for social security debts. A new framework will be established for the civil service, opening managerial positions to outsider contestants, while also seeing to a bi-annual assessment of performance for state functionaries and the restructuring of their wages and benefits.

Pensions will be reduced to 345€ for 15 years of documented labour and 384€ for 20 years. Τhe solidarity grant, EKAS, will be abolished by the end of 2019, along with any other additional grants. The savings from this process will be directed towards the introduction of a Guaranteed Minimum Income in June, a measure that has been advocated by various political parties in recent years. Next to measures that aim at reducing the fiscal cost of the pension system, there will be a vast reform of personal income taxation which is expected to yield profits equal to 1% of Greece’s GDP, as it will broaden the tax-paying base of wage-earners, 55% of whom are now exempt from any tax. Thus, the tax-free threshold will be lowered to 8,812 € per year from its current standard of 9,545€, while similar measures will be taken regarding tax credit which will be lowered from its current level of 2,100€ to 1,800€. A higher tax rate will be imposed on electricity and other utilities, while books, magazines and entertainment services will enter the middle strata of the VAT scale. ENFIA, the controversial housing tax that was introduced in 2014 will be restructured, so as to balance the loss from the coming readjustment of zone prices that aims at reflecting current market values for real estate. Greek farmers that took to the streets just two months ago, will now be taxed on the sum of their income, including subsidies, and the definition of the professional farmer will tighten for tax purposes.

Labour issues have also entered into the agreement. A new Labour Law Code has to be implemented by the end of 2016, preceded by the government’s commitment to line up legislation on collective dismissals, strikes and bargaining with “best practice in the EU”. The governing party’s aim of reinstating the minimum wage to previous levels will have to be delayed, as the agreement is binding to 2013’s legislation and a prohibition of “a return to past policy settings” is mentioned explicitly. Labour reforms have also extended to the field of education, where a restructuring of the system will take place, harmonising schools and universities with market needs and standards.

Privatisations via TAIPED, the Asset Development Fund, are characterized as an integral part of the agreement and TAIPED’s Development plan of 27 assets has to be endorsed by the government immediately. The airport of Hellinikon, Thessaloniki port authority and the remaining obligations on the port of Piraeus and the 14 regional airports should be finalized as soon as possible. A new independent authority, simply called the “Fund”, will be established, managing assets in order to maximize the value in privatisation transactions, answering to Greek authorities, but supervised by European Institutions. Privatisation extends to utilities, with either the majority or the total of ADMIE’s — the Electricity Provider — stocks being sold from the Public Power Corporation to private interests, and the two major Water providers, EYDAP and EYATH, are entering a 5-year business plan, assessing their needs and seeking funding, hinting at a possible future privatisation, should the plan fail to meet its goals.

The draft of the agreement seems to suggest serious concessions on behalf of the Greek government, as it covers the vast majority of measures that were left out of the previous bailouts. A second round of social and political reactions is expected to follow, while the government’s parliamentary majority, though currently stable, will surely face some turmoil in the coming months. The agreement explicitly sees to readjustments of the program’s goals so as to offset the fiscal impact of the refugee issue, but it remains a question whether such major changes can be implemented amidst an already tumultuous situation.

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