As Greece and its creditors engage in last-minute negotiations over a range of reforms and privatizations as the country seeks to unlock 1 billion euros in funding, there are growing indications that the terms of Greece’s third bailout are shifting, as some reforms are delayed and privatization plans fall short of their targets.
In August, Greece reached an agreement with its international creditors for a new bailout worth 86 billion euros ($94 billion). Under the terms of the deal, Greece was to adopt a series of “milestones,” reforms and legal changes requested by its creditors that would constitute preconditions for funding. The deal called for changes to the country’s retirement system, the liberalization of the labor market and significant amendments to the tax system. The deal also envisioned Greece generating 50 billion euros from privatizations over he next 30 years. Greece would sell ports, real estate and other assets, with the money from these privatizations to be used for guaranteeing banks, covering debts and financing investment.
The latest round of negotiations with creditors is aimed at allowing Greece to adopt legislative changes next week and thus gain access its next tranche of funding. But Greece, less than half a year after its third bailout agreement, is already falling behind on implementation. In 2016, under the August agreement, Greece was to generate 3.7 billion euros from privatizations. Earlier this week, however, the head of the country’s privatization fund said that the country would likely only manage to get 2 billion euros. In fact, sources involved in the current negotiations told Greek media that Greece is no longer required to generate 50 billion euros over the coming decades from privatizations as outlined in the August deal.
In addition to Greece not meeting its privatization goals, negotiations over the issue of non-performing loans in Greece’s banking sector are stalling. Non-performing loans are over 34 percent of the total loans in Greece. While there are indications that some progress is being made in the negotiations, there is disagreement over which kind of non-performing loans can be sold to funds. The Greek government is trying to prevent mortgages, small business and consumer loans from being transferred to private funds. At the same time, the Greek leadership is struggling to formulate pension reforms that would be acceptable both to its creditors and to the Greek electorate. Two general strikes have taken place in Greece in the past several months over pension reforms and austerity measures.
Greece may succeed at passing some measures next week that will qualify the country for its next tranche of 1 billion euros, but with major issues still unresolved, Greece is falling behind in the implementation of its third bailout package. As changes to Greece’s privatization prospects demonstrate, some of the terms of the deal may not have been realistic to begin with, and there is a recognition among creditors that some parts of the agreement will not be fully implemented. There is also domestic opposition to some of the reforms, thus putting pressure on the Greek government — which has a very narrow majority in parliament — to attempt to gain as many concessions as possible from creditors. Nevertheless, as Geopolitical Futures outlined in our annual forecast, Germany cannot afford to see a breakup of the eurozone and is thus making deals with Greece that it knows Athens cannot implement in order to prevent a member from exiting the monetary union. Germany is taking these measures despite the fact that there are already signals that Greece is straying from the terms of the third bailout package.