The return of creditors' mission chiefs to Athens on Tuesday to conclude the second review of the Greek program comes a day after the WSJ reported that IMF Europe chief Poul Thomsen called looming pension cuts and a wider tax base (expanded downwards) as mere "down payments" in terms of the total reform package.
Nevertheless, government official in Athens appear confident that negotiations over a staff-level agreement will be concluded this week, with the entire review completed by a late May Eurogroup meeting.
Two crucial matters on the agenda are the level of pension cuts for 2019 and figure where the tax-free annual income threshold will drop to. Currently, the threshold for most categories of wage-earners is roughly 8,600 euros, with creditors pushing for at least a 2,000-euro decrease. Both the decrease in the social security outlay and the expanded tax base, via the lowering of the threshold, must yield revenues or spending cuts worth 1 percent of GDP, each. Pension cuts will come in 2019, followed by a lowering of the tax-free threshold in 2020.
Another "open issue" that must be resolved is creditors' demand that the state-controlled power company (PPC) sell-off 40 percent of its power-generating units, part of a bid to liberalize the electricity market and reduce PPC's current "dominant position" in the sector.
The last major obstacle is labor sector liberalization, although recent reports have pointed to creditors backing off previous demands for easier mass layoffs and the legal enactment of employers' right to "lockout" in the country.
Thomsen's statements on Monday, as carried by the WSJ, essentially reiterate the IMF's belief that Greece cannot continue to achieve ambitious fiscal targets, such as primary budget surpluses as a percentage of GDP, after 2018, even with the latest round of austerity measures being discussed and even if debt relief is given by European creditors.
Greece external debt now reaches roughly 326 billion euros, or 180 percent of GDP, of which 226 is held by institutional European creditors.
