EZ source: Fiscal gap for 2018, labor sector reforms still main obstacles in closing second review

By N. Bellos

A projected fiscal gap for 2018 and continued differences between Athens and creditors over labor sector liberalization appears as the remaining and most difficult obstacles in concluding negotiations towards a second review of the Greek program (third bailout).

According to reports, the IMF has continued to exert the most assertive stance vis-à-vis the leftist Greek government. The fund has in the past pressed for a full liberalization of Greece’s labor sector and for more realistic fiscal targets, although the goal of concluding the review early next month remains.

According to a Eurozone source in Brussels on Monday evening, negotiations in Athens have (as expected) entered a crucial phase and with deadlines now pressing.

A EWG session is set for Nov. 28, two weeks before a critical – for the Greek program – Eurogroup meeting on Dec. 5.

The same source said the “gap” in Greece’s public finances for 2018 is judged as significant and must be covered.

Echoing its standing criticism of the third bailout program, the IMF has pointed to unrealistic targets for primary budget surplus goals (3.5 percent of GDP in 2018) and uncertainty after the program ends in mid-2018. The IMF wants lower primary budget surplus targets or more measures (taxes, spending cuts) by Athens.  

Any reduction of such fiscal targets, according to the Europeans, is a political decision left up to Eurozone finance ministers, and not the institutional creditors as a group, i.e. the “quartet”.  

Despite whatever difficulties, the same source said the prospect of an agreement before Dec. 5, or even before the holidays, is distinctly possible.  

However, the EWG session next week needs to be presented with significant progress from the negotiations, thereby allowing for a convergence of views in the week before the Eurogroup convenes.