Galery

1

Markets regard the striking of an agreement between Greece and its creditors as very likely in the coming days. Having said that, the business community is not hiding its concern about the likelihood of a lingering uncertainty and financial hardships until the autumn, and believes that if those materialise new elections are inevitable.

According to market factors closely following the negotiation process, the countdown to sealing an agreement has already begun as regards the conditions for completion of the memorandum’s final evaluation.

As can be seen from the proposals lodged by the two parties, the common framework has already been thrashed out. It implies completion of the evaluation and transmission of agreed tranches, while the key decisions for the new medium-term programme will be put off until the autumn.

A convergence of views on the targets of budget surpluses – a key priority for the creditors – has also been registered.

"What has been happening over the last few days is only meant to cushion blowback from party circles," said a senior banking sector representative. He believes the two sides are close to an agreement, with the institutions having made some concessions.

It is no coincidence that, after his meeting with European Commission President Jean-Claude Juncker, the Prime Minister highlighted the two areas where the Greek government will not back down: the increase of VAT on electricity to 23% and the phasing out of social solidarity bonuses on pensions.

The institutions are likely to take these two demands off the negotiating table, thus enabling both an agreement and cutting the proper political figure to usher it through parliament without critical mass of resistance.

"This is the government's window dressing routine for the sake of the parties," admits a representative of an auditing firm. He points out that the strongest consternation in government and SYRIZA circles was triggered by the creditors’ ‘irrational’ demands to cut pension bonuses and raise VAT on electricity.

There was also resistance from the Independent Greeks MPs against the extra taxes on big corporate profits, which the Greek government put forward, without consulting its own coalition partners.

The budget surplus - the centrepiece for both the government and the creditors

Substantial progress has been made on primary budget surplus targets.

According to business analysts, the government will get what it wanted, i.e. a reduction on the primary budget surpluses. This will be its strongest weapon in the vote on the agreement in parliament as a reduction gives it leeway to pursue fiscal policies with redistributive functions, and thus attempt to create a growth fostering environment and retain the hope for debt restructuring at a later stage.

The partners in turn have their foot in the door on budget surpluses and leave the key decisions for the autumn when the substantive negotiations on the new financial programme are scheduled.

Until then, the government's intention not only to vote but also to fulfil the preconditions for completing the assessment will have panned out. Thus creditors will retain their grip on both the tool for debt repayment and the possibility of new talks on the medium-term programme.

The risk of continued uncertainty until autumn

Achieving an interim agreement, which will delay the important decisions until the autumn creates a risk for the markets. It will be interpreted as a stopgap solution by both the government and its partners. It will burden the economy and the banks by perpetuating their plight and the uncertainty for the country's future.

"The fact that key decisions are put off is likely to increase the government's reluctance to implement the measures it has voted," said a business representative, recalling the behaviour of Georgios Papandreou’s government back in 2011.

If this scenario materialises, parliamentary elections in September are very likely. According to the business community, SYRIZA will try to renew its popular mandate before the start of negotiations on the substance of the new medium-term programme by making its case based on the new set of circumstances facing the party, which give a new twist to its promises made before the elections back in January.