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Greece: assessing recent developments in the context of the 2nd programme review

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Greece Macro Monitor (14 February, 2017)

Assessing recent developments in the context of the 2nd programme review

In this report we take stock of recent developments in the context of the 2nd programme review, highlighting some important challenges in the way to reaching a staff level agreement (SLA) and unlocking further official-sector financing to the cash-strapped domestic economy. Our take is that last week’s meeting in Brussels between Greece’s leading negotiators and senior official creditor representatives constitutes an important step towards resolving the present impasse. Indeed, it seems that an agreement has at last been reached among official creditors on what needs to be done to unfreeze formal talks in the context of the 2nd review.  This is especially so in light of the widely-publicized diversion of views between the EU Institutions and the IMF as regards such crucial aspects of the Greek programme as the medium- and long-term growth outlook, the size of future primary surpluses and the debt relief required to restore debt sustainability. However, despite the reported progress made at the February 10th meeting in crystalizing official creditor demands, significant challenges remain as regards both the timing of reaching a staff level agreement (SLA) and the IMF’s participation in the Greek programme. All the more so as the current consensus view argues against the implementation of further pro-cyclical austerity in Greece i.e., over and above what has already been legislated in the context of the present stabilization programme. The strong outperformance of the 2016 primary surplus target is another development arguing against the merits of the upfront legislation of new measures worth €3.6bn (c. 2%-of-GDP) pertaining to the period 2018-2019. In addition to providing analysis on the aforementioned issues, the report provides insights on what has reportedly been discussed at the February 10th Brussels meeting and the progress made thus far on the formal agenda of the 2nd review.

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