The Greek government has reportedly decided to implement a slightly watered down version of an automatic spending cut mechanism demanded by creditors in order to ensure that it meets memorandum-mandated fiscal targets through 2018.
The leftist government will unveil its mechanism -- dubbed the “cutter” by local media and opposition critics and alternately identified with the French term “stabilisateur” -- with a view to establishing a “pre-emptive” oversight and roll-back of state expenditures so that subsequent cuts are avoided.
Such a mechanism would relate only to fiscal targets, such as a goal of a 3.5-percent budget surplus as a percentage of GDP in 2018, and be based on Eurostat figures and not estimates.
The Tsipras government also wants to avoid activating its version of the mechanism for small deviations from targets, “small” in this case being under 0.25 percent of GDP, as well as when outside factors are at play, i.e. extra state funding for dealing with a refugee crisis.
A draft bill including the “cutter” mechanism and 1.8 billion euros in indirect tax hikes will be submitted to Parliament under an “express process” for a vote by Sunday. The accelerated process aims to have the legislation passed before a crucial Eurogroup meeting next Tuesday. The Greek government will anxiously await approval from Eurogroup finance ministers for a first review of the Greek program (third bailout) and some type of action regarding the future of Greek debt relief.
Without the now-delayed first review Athens cannot receive disbursements of scheduled bailout loans from creditors.
The decision to ratify the “cutter” mechanism via a Parliament vote marks an “about face” from last month’s position by various government ministers, who claimed that such legislation was unconstitutional under Greek law.
