EC: Tsipras’s announcements could push back 2nd review for months

The European Commission (EC) warned that the recent announcements by Greek PM Alexis Tsipras to allocate part of the GDP surplus to low income pensioners, which resulted in a heated exchange of rhetoric between the Greek side, EU officials and the IMF, would delay the second review of the fiscal adjustment program. The vice-president the EC, Valdis Dombrovskis, noted that the social provisions announced by the Greek PM led to an “unnecessary and useless” situation in negotiations between Athens and the institutions, in an interview to Kathimerini’s Sunday edition. The EC vice-president added that even though talks would continue and that the Greek program was generally on course, the unilateral decision by Mr. Tsipras made talks more “tumultuous”, estimating that a deal on the second review, which appeared to be close would now be pushed back weeks or even months.

Mr. Dombrovskis’s views echoed those of the managing director of the European Stability Mechanism (ESM), Klaus Regling, who in an interview to Spanish El Mundo claimed that the announcements had hurt efforts to restore trust between Greece and its creditors, although the provisions themselves were not expected to substantially impact the fiscal targets of the Greek program.

The EC vice-president underlined that based on the terms of the bailout program Greece could not make social provisions without prior deliberation with the institutions, and reminded that according to the first assessment of the announcements there was some concern voiced. He went on to say that despite the difference of opinion between the IMF and the European creditors on the primary surplus and the fiscal measures necessary to achieve it, the gap between the two was in reality not as wide as had appeared in the press.

Meanwhile, think-tank Stratfor warned in a report that any delays in the completion of the second review of the Greek program would affect the inclusion of Greek bonds in the ECB’s quantitative easing scheme, as the European Central Bank has made it clear that it would not purchase Greek state bonds if no reassurances were present regarding the sustainability of the Greek debt.

On its part, Citigroup estimates that the unwillingness of Greece’s lenders, and especially Germany, to make any concessions to Greece would lead to rising tensions between the two sides over the next months, even tough its analysts estimate that these tensions would not lead to a complete breakdown in talks.