Greece Beats Bailout Targets Again as Debt-Relief Talks Loom

(Bloomberg) -- The European Commission confirmed on Monday that Greece beat its bailout targets again last year, strengthening the government’s case against demands to bring forward additional tax measures originally scheduled to kick in starting 2020.

Europe’s most indebted state achieved a budget surplus before interest and other one-time payments equal to 4.2 percent of its gross domestic product in 2017, more than twice the target set by its bailout auditors for a 1.75 percent of GDP surplus, the European Union’s executive arm said. Greece achieved a general government budget surplus for the second year in a row, according to the bloc’s statistical service Eurostat.

“This good news is a welcome shot in the arm for Greece ahead of the crucial Eurogroup discussions that must prepare a positive conclusion to the program this summer,” European Commissioner for Economic Affairs Pierre Moscovici said in a statement, referring to scheduled meetings of euro-area finance ministers. “The tremendous efforts made by Greece in recent years to repair its public finances and reform its economy are now paying off.”

With the latest lifeline keeping Greece afloat set to expire in August, the government of Alexis Tsipras has committed to additional pension cuts and a lower income tax-free threshold in 2019 and 2020, as creditors seek reassurances that the country won’t go back to its old ways that brought the economy to the brink of collapse in 2009. Tsipras has resisted calls from the International Monetary Fund to implement the measures earlier, hoping that the country’s stronger-than-expected budget performance vindicates his position.

Greece Beats Bailout Targets Again as Debt-Relief Talks Loom

The stronger performance will also likely feed into the upcoming talks on Greek debt relief.

Today’s data show that the target for primary surpluses of 3.5 percent of GDP for 2018 and the coming years is “feasible” and that there’s fiscal room for targeted tax relief and social spending in the post-bailout era, Greece’s Finance Ministry said.

European creditors want Greece to maintain a stellar fiscal performance for years to come, thus minimizing the need for a further restructuring of bailout loans. While the IMF doubts such expectations are realistic, budget readings from the past years may boost the arguments of countries led by Germany that oppose additional relief.

Public debt

Eurostat said Monday that Greece’s public debt dropped slightly to 178.6 percent of its GDP last year, but it remains by far the highest in Europe compared to the size of the economy. Northern EU states say that concessional terms on bailout loans mean that the load is sustainable.

A limited move on debt relief would be a blow to Tsipras as he braces for national elections next year and may strain the country’s tenuous access to debt markets. The hit could be offset if the government pushes back against additional austerity demands.

Euro-area finance ministers are scheduled to discuss debt relief and a mechanism for keeping Greece’s finances on a tight leash after the bailout when they meet later this week in Sofia, Bulgaria. Negotiations are scheduled to conclude this summer, provided that Greece fulfills the remaining terms attached to its bailout.

©2018 Bloomberg L.P.