Greece Warned About Widening Spreads and Danger of Lacking Targets By Bloomberg


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© Bloomberg. A woman unfolds a souvenir Greek national flag hanging outside a street vendor’s kiosk in Athens, Greece, on Tuesday, Feb. 28, 2017. Greeces auditors are pulling together a list of policies the country needs to implement to unlock additional bailout funds as talks with Athens resumed on Tuesday, two people familiar with the matter said.

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Less than a year after Greece escaped the shackles of its bailout program, it runs the risk of going rogue.

The latest round of tax cuts and handouts announced by the Greek government mean that Europe’s most indebted state will probably miss an agreed target for a budget surplus excluding interest payments, the head of the euro-area’s crisis fund said. The shortfall will deteriorate further next year, Klaus Regling warned after a meeting of the bloc’s finance ministers in Brussels.

Greece pledged to maintain a stellar fiscal performance in perpetuity in order to bring its mountain of debt into a downward path. The 3.5% primary surplus through 2022 is a condition attached to its debt relief deal, as the country’s own contribution to lightening its burden.

Earlier this month, Greek Prime Minister Alexis Tsipras presented a series of voter-friendly measures, including a bonus to pensioners to be paid just days before next week’s European elections, as well as a cut to sales taxes.

The benefits have led to a widening of Greek bond spreads by some 50 basis points, Regling told reporters.

Tsipras also said that the budgets over the coming years will see a primary budget surplus target of 2.5% of gross domestic product, and not the 3.5% agreed with euro-area creditors last year. Failure to reach that target could throw Greece’s debt trajectory off course, and lead to the suspension of some relief measures.

These recent announcements could push euro-area governments to decide against allowing Greece to repay of its more expensive loans to the International Monetary Fund early. “It remains to be seen,” Regling said.

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