Following the International Monetary
Fund’s (IMF) recent report on the Greek bailout, steps toward compromise
between the IMF and European creditors make it likely that Greece will
face pressure to meet its commitments.
The Greek government had
previously agreed to fiscal targets of a 3.5 percent budget surplus target as
a percentage of GDP after 2018. The IMF considers this target, a demand from
European creditors, to be unrealistic and proposed in its recent report that a
target of 1.5 percent of GDP would be more likely to be successful. Any
compromise to bring the IMF back into the fold as a creditor in the bailout
would likely require the IMF to accept the higher target and require the Greek
government to agree to precautionary measures to be implemented in 2018.
These measures will include
efforts to boost Greek tax revenue through an increased tax base,
accomplished by lowering the current tax-free income threshold. The government
would also likely be required to reduce social security expenditures, where
Greece has the highest spending percentage when weighed against GDP for any
European Union country. Finally, the country would likely have to liberalize
the labor market, for instance, allowing companies to approve mass layoff
without government approval.
