The meeting of Minister of Finance Yiannis Stournaras with the lenders’ representatives, namely Paul Thomsen of the International Monetary Fund, Klaus Masuch of the European Central Bank and Mathias Morse of the European Commission, went on for five hours today but no agreement was reached. The talks will continue in the coming days.
The issues on the agenda are the gap in the budget for 2014, regarding which the difference in the assessments of the Greek Ministry of Finance and the lenders amounts to 700 million euro, as well as other problems, including the requirements already laid down in September and the issue of the sale of debtors’ mortgaged houses.
During the meetings over the past few days, dedicated to the different expectations of the two parties regarding next year's budget, the representatives of the Troika and the Ministry of Finance have made some steps towards bringing their views closer. Let us recall that, upon leaving Greece in September, the Troika had obliged the Minister of Finance to plan for 2014 new measures worth 2.9 billion euro.
Officials from the Ministry of Finance believe there will be an agreement if the Troika yields the measures amounting to 2 billion euro, on which it insists today, and if the Ministry convinces it in the effectiveness of the measures prepared by it.
However, no one dares to predict whether this agreement will materialize before Friday, 21 November, when the final draft budget will be submitted to parliament.
On the other hand, neither the Ministry of Finance nor the lenders want a supplementary budget at the beginning of 2014 as it would send the wrong signals to the international markets as the need for an additional budget would mean an implicit failure to achieve the goals set, for the time being, by the Greek government.
The issues relating to the defence industry and water supplying companies as well as the problem of the mobility of the public sector employees remain unresolved.
The Ministries of Finance and Development will have to decide the delicate issue of the sale to banks of debtors’ mortgaged houses, as the Troika insists on the full liberalization of these sales.
Insurance funds
A major issue in the negotiations with the representatives of the lenders remains the agreement on the filling of the budget gap for next year as, with regard to it, the requirements of the Troika involve new measures amounting to almost 2 billion euro.
According to the lenders, social security funds, health care and tax revenues have contributed to the budget gap the most. In particular, they believe that an additional deficit of over 1 billion euro will appear in the insurance funds in 2014. This assessment is based on the 300,000 applications for retirement submitted and on the collapse of the funds’ revenues.
Moreover, the Troika has not estimated the decline in the revenue of the insurance funds due to the gradual reduction of the taxes in favour of third parties, which will have to be gradually removed as of next year and which will lead to huge losses. The revenue, which 23 insurance funds, including the National Insurance Institute, the fund of traders, the pension funds of seafarers, lawyers, hoteliers, employees in the defence system and others, will lose after the completion of the process of elimination of the taxes in favour of third parties will exceed 2 billion euro. However, the total amount of the taxes in favour of third parties directed to other institutions (ministries, companies, local authorities, etc.) will exceed 4 billion euro.
The Troika has put back on the negotiating table, as possible equivalent measures, the reduction of pensions in the so-called "noble" funds, such as of state enterprises and banks, the cut in the lump-sum compensation on retirement and the supplementary pensions.
According to the Troika, another reason for the gap in the budget is health care. The retroactive adjustment of health care costs (claw back), which had been intended to save 500 million euro in 2013 and as much in 2014, has not brought the expected results.
The new property tax
An important issue in the negotiations with the representatives of the Troika remains the new property tax which, based on the new data, will create another budget gap to the amount of nearly 250 million euro. It seems that, in this connection, the Greek Ministry of Finance is going to cut the public investment programme by 200 million euro and to reduce some operating costs by almost 50 million euro.
In this situation, it is expected that the public investment programme in the draft budget will be reduced to 6.8 billion euro from 7 billion euro.
Package of measures worth 1.3 billion euro
With regard to tax revenues in 2013, the Troika believes that part of the increase in revenue over the past four months has been "technical" and due to the proceeds from the income tax collected at the end of the year. It attributes this increase in revenue collection to the retrospective collection of the real estate tax for the period 2011-2013. As regards the calculation of revenues for 2014, the representatives of the lenders disagree with the increase in revenues by nearly 2 billion, as stipulated in the draft budget, arguing that this amount will be slightly over 1 billion euro.
At the same time, the Greek Ministry of Finance is entering the negotiations with a package of measures to the amount of 1.3 billion euro.
In particular, the package of measures of the Ministry of Finance provides for the following:
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