European Commission Vice President Valdis Dombrovskis said projections for Greece produced by the International Monetary Fund, or IMF, are too pessimistic, and called on creditors to release fresh funds to the country in an interview with Handelsblatt.
Mr. Dombrovskis, who is also the commissioner with responsibility for the euro, said Greece’s reform program was going according to plan. Athens was “very close to having fulfilled all conditions” to complete the second review of its third bailout program, he added.
Markets have been increasingly nervous about Greece in recent days, with yields on Greek one-year bonds rising to 11.85 percent. Athens is due to pay €7.4 billion this summer, in interest payments and maturing bonds, around $7.82 billion. The Greek government will require continuing injections of funds in order to meet its obligations. To receive these payments, it needs to show adequate progress on the structural reforms agreed during the last Greek crisis, in the summer of 2015.
Mr. Dombrovskis insisted that the Greek economy was “on track,” with growth expected to reach 2.7 percent this year. The primary budget surplus target of 1.75 percent of GDP would be achieved as planned, and Greece had implemented “almost all reforms,” he said, to reach the 2018 target: A primary budget surplus of 3.5 percent. He acknowledged that the IMF did not have the same view. “The IMF has very pessimistic macroeconomic and fiscal projections. There is a gap between our figures and theirs.” The IMF has long taken a more skeptical view of Greece’s economic condition than the European Union, while also arguing for more lenient treatment of the Aegean nation.
The IMF has very pessimistic macroeconomic and fiscal projections. There is a gap between our figures and theirs. Valdis Dombrovskis, European Commission Vice President
Mr. Dombrovskis said the European Union and the IMF were working hard to bridge the gap in their interpretations. He said he hoped that an overall agreement between Greece and the European Union could be thrashed out by February 20, when the next meeting of the euro-zone financial council is scheduled.
Asked why risk premiums had sharply increased on Greek bonds, if the situation was progressing, Mr. Dombrovskis said: “The current turbulence is linked with the discussions now dragging on, so there is no clarity for markets. So it is important to close the second review as soon as possible.” If uncertainty continued, he added, it could endanger Greece’s economic recovery.
While the commissioner insisted that Greece is on the right path, he had sharper words about the excessive Italian and French budget deficits. “In our economic policy priorities — of investment, structural reform, and fiscal responsibility—fiscal responsibility is still very much on our agenda,” he said. France had to reduce its budget deficit to under 3 percent of gross domestic product, or GDP, while Italy needed to make further savings in order to bring down its planned deficit a further 0.2 percentage points, to 2.4 percent of GDP.
Spain’s budget deficit is also causing concern on the markets: According to figures from the E.U., this year it will reach 3.5 percent of GDP, clearly in excess of the 3 percent target agreed upon by all of 28 E.U. member states. Mr. Dombrovskis said that in spite of the situation with France and Spain, the overall trend was favorable. Member states’ budgetary situation would be reviewed in May.
In our economic policy priorities — of investment, structural reform, and fiscal responsibility — fiscal responsibility is still very much on our agenda. Valdis Dombrovskis, European Commission Vice President
Italy’s proposed state-funded bailout of its troubled banks would add to its deficit, but Mr. Dombrovskis said if Rome’s restructuring plans adhered to the criteria set down in the E.U.’s bank liquidation guidelines, the European Commission would have to approve it. On whether a European-level “bad bank” could be the solution to the Europe-wide problem of non-performing loans, he said it was important to bear in mind that E.U. states have very different laws on bankruptcy.
Deficits were not the only macroeconomic problem facing the European Union, he suggested: Germany’s surplus was also a “recurring issue.” He underlined that by 2018, Germany’s current account surplus will reach 8 percent, which is far above the E.U. upper limit. But he confirmed the European Union was not considering sanctions against Germany, in spite of the macroeconomic imbalance: the country was substantially increasing public investment, and there was some wage growth.
Ruth Berschens heads Handelsblatt's Brussels office, leading coverage of European policy. Jan Hildrebrand is deputy chief of Handelsblatt's political coverage. Jan Malien monetary policy for Handelsblatt out of Frankfurt. Gerd Höhler is a Handelsblatt correspondent. To contact the authors: [email protected], [email protected]