## Greece: A Credible Deal Will Require Difficult Decisions By All Sides

_IMF Blog, June 14, 2015_

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**Canonical URL:** [Greece: A Credible Deal Will Require Difficult Decisions By All Sides](https://www.imf.org/en/blogs/articles/2015/06/14/greece-a-credible-deal-will-require-difficult-decisions-by-all-sides)

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## Bibliographic details
- Authors: Olivier Blanchard
- Published: June 14, 2015

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### Negotiation context and core question
- Negotiations are between Greece and its official creditors: the European Commission, the ECB and the IMF.
- Core question: How much of an adjustment must be made by Greece, and how much by its official creditors?
- 2012 program arrangement: Greece was to generate enough of a primary surplus to limit its indebtedness, implement reforms to raise growth, and in consideration European creditors were to provide needed financing and provide debt relief if debt exceeded 120% by the end of the decade.

### Original and revised primary surplus targets
- Original program targets: primary surplus of 3% in 2015, and 4.5% next year.
- These targets have become unattainable and "the target clearly must be decreased."
- Offer made to the Greek government proposed:
  - Lowering the medium term primary budget surplus target from 4.5% of GDP to 3.5%.
  - Giving Greece two more years to achieve that target—so the target for this year was reduced to 1%.
  - Asking for a more limited set of reforms.

### Tradeoffs between fiscal adjustment, financing, and debt relief
- A lower primary surplus target implies:
  - Less painful fiscal and economic adjustment for Greece.
  - A need for more external official financing.
  - A commitment to more debt relief from European creditor countries.
- Limits exist both on what Greece can do and what official creditors can provide given taxpayers to consider.

### Reform requirements and fiscal composition
- The IMF view: the lower new target cannot be credibly achieved without:
  - A comprehensive reform of the value-added tax (VAT) involving a widening of its base.
  - A further adjustment of pensions.
- Fiscal structure and required adjustment:
  - Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone.
  - Pension expenditures account for over 16% of GDP.
  - Transfers from the budget to the pension system are close to 10% of GDP.
  - A reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and can be done while protecting the poorest pensioners.
- Alternatives for designing VAT and pension reforms are acceptable only if they "add up and deliver the required fiscal adjustment."

### Debt relief modalities and conditionality
- Under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates.
- Any further decrease in the primary surplus target, now or later, would probably require haircuts.
- For a deal to be effective and credible:
  - Greek government must offer truly credible measures to reach the lower target budget surplus and show commitment to the more limited set of reforms.
  - European creditors must agree to significant additional financing and to debt relief sufficient to maintain debt sustainability.

### Bottom line
- Both sides face tough choices and commitments: Greece needs credible fiscal measures and reforms; creditors need to provide financing and debt relief within their political constraints.
- The IMF view expressed: "We hope that agreement can be achieved along these lines."

*Greece: A Credible Deal Will Require Difficult Decisions By All Sides — Olivier Blanchard, June 14, 2015.*

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## Content in this bundle

- **希腊：为达成可信的解决方案，所有各方都必须做出困难的决定; iMFdirect博客; 2015年6月14日**
  - [希腊：为达成可信的解决方案，所有各方都必须做出困难的决定; iMFdirect博客; 2015年6月14日 (Markdown version)](/external/chinese/np/blog/2015/061515c.pdf.md){rel="alternate" type="text/markdown"}
  - [希腊：为达成可信的解决方案，所有各方都必须做出困难的决定; iMFdirect博客; 2015年6月14日 (PDF)](/external/chinese/np/blog/2015/061515c.pdf){rel="external" type="application/pdf"}
- **Ελλάδα: Μια Αξιόπιστη Συμφωνία Θα Απαιτήσει Δύσκολες Αποφάσεις από όλα τα Μέρη**
  - [Ελλάδα: Μια Αξιόπιστη Συμφωνία Θα Απαιτήσει Δύσκολες Αποφάσεις από όλα τα Μέρη (Markdown version)](/external/lang/greek/np/blog/2015/061415gr.pdf.md){rel="alternate" type="text/markdown"}
  - [Ελλάδα: Μια Αξιόπιστη Συμφωνία Θα Απαιτήσει Δύσκολες Αποφάσεις από όλα τα Μέρη (PDF)](/external/lang/greek/np/blog/2015/061415gr.pdf){rel="external" type="application/pdf"}
- **Grecia: Un acuerdo creíble exigirá decisiones difíciles de ambas partes; Por Olivier Blanchard**
  - [Grecia: Un acuerdo creíble exigirá decisiones difíciles de ambas partes; Por Olivier Blanchard (Markdown version)](/external/spanish/np/blog/2015/061415s.pdf.md){rel="alternate" type="text/markdown"}
  - [Grecia: Un acuerdo creíble exigirá decisiones difíciles de ambas partes; Por Olivier Blanchard (PDF)](/external/spanish/np/blog/2015/061415s.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://blog-montada.imf.org/?p=3679)

_Source: https://www.imf.org/en/blogs/articles/2015/06/14/greece-a-credible-deal-will-require-difficult-decisions-by-all-sides_