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26 Apr 2016
Greece: Risks rising again - BBH
Research Team at BBH, suggests that the potential risk for the Eurozone is coming from Greece as it wants to pass the review its progress so that debt relief can be discussed.
Key Quotes
“Germany, for one, still seems reluctant to even put it on the agenda. The IMF is insisting on it. One of the reasons, Greece has been off the front pages is that it does not have debt payments due to the IMF or ECB, until June.
There are three key issues: pension reform, tax increases, nonperforming loans. The creditors have insisted that in addition to the implementation of 5 bln euros in new savings (tax increases and spending cuts), Greece needs to agree to a 3 bln euro contingency plan that kicks in if the Greece falls short of the 5 bln euro in savings.
The IMF talks about debt relief, but it seems to exclude itself. On the other hand, it takes a more realistic view of Greece's primary budget surplus target. The current target is 3.5% of GDP from 2018 on indefinitely. The IMF says the current agreement only gets it to 1.5%. It seems more skeptical that the 3.5% primary budget surplus can be sustain even if reached. It does no appear that any country, including Germany, have been able to achieve this for any meaningful period. Before the weekend, Eurostat reported that Greece's primary surplus was 0.7% of GDP, which was a little more than anticipated.
The IMF is opposed to new taxes in Greece. It wants the tax base broadened by eliminating exemptions. According to one estimate, exemptions reduce the households' tax burden by 55% compared with an average of 18% for the eurozone as a whole. The IMF insists on cutting the exemptions to 1800 euros per household. Over the weekend, Greece apparently conceded to 1900 euros per household. This difference is 0.1% or about 200 mln euros in a 5.4 bln euro package.”
Key Quotes
“Germany, for one, still seems reluctant to even put it on the agenda. The IMF is insisting on it. One of the reasons, Greece has been off the front pages is that it does not have debt payments due to the IMF or ECB, until June.
There are three key issues: pension reform, tax increases, nonperforming loans. The creditors have insisted that in addition to the implementation of 5 bln euros in new savings (tax increases and spending cuts), Greece needs to agree to a 3 bln euro contingency plan that kicks in if the Greece falls short of the 5 bln euro in savings.
The IMF talks about debt relief, but it seems to exclude itself. On the other hand, it takes a more realistic view of Greece's primary budget surplus target. The current target is 3.5% of GDP from 2018 on indefinitely. The IMF says the current agreement only gets it to 1.5%. It seems more skeptical that the 3.5% primary budget surplus can be sustain even if reached. It does no appear that any country, including Germany, have been able to achieve this for any meaningful period. Before the weekend, Eurostat reported that Greece's primary surplus was 0.7% of GDP, which was a little more than anticipated.
The IMF is opposed to new taxes in Greece. It wants the tax base broadened by eliminating exemptions. According to one estimate, exemptions reduce the households' tax burden by 55% compared with an average of 18% for the eurozone as a whole. The IMF insists on cutting the exemptions to 1800 euros per household. Over the weekend, Greece apparently conceded to 1900 euros per household. This difference is 0.1% or about 200 mln euros in a 5.4 bln euro package.”