Greece proposes horizontal German type contingency measures mechanism, as the first review of the third bailout macroeconomic adjustment program.

On the next day of Amsterdam’s Eurogroup meeting that earmarked the adoption of IMF’s demand for contingent measures, talks in Athens resume. “The policy package should include a contingent package,” stressed IMF’s Director General Christine Lagarde during Friday’s post-Eurogroup meeting press conference in Amsterdam. Lagarde then described a “contingent mechanism” that “needs to be credible, legislated upfront and automatic.”

However, the immediate reaction of Greek Finance Minister Euclid Tsakalotos was not that positive. “Within Greek law you can’t legislate contingently,” Tsakalotos answered to Lagarde. The zero deficit clause for pension funds, is a good example of the ability to legislate conntingency measures under the Greek law. So, what the Greek government wants, is to avoid legislating extra measures that would describe future cuts in pensions and salaries, as this would mean “extra political cost, to an already heavy package” according to Greek government source.

The 2/3 of the first review’s fiscal measures, aiming to save 1+1% of Greece’s GDP, were tabled at the Parliament, just hours after Friday’s Eurogroup, in form of a single multi-bill of 680 pages, due to vote at 10 May. The Greek government has put both chapters of the draft bill at public consultation last week, causing rage to the country’s opposition, that kept considering the pre-tabling publication of the draft bills a “unilateral act”, as the talks between the Greek government and the Institutions’ heads of mission were ongoing.

The Greek government believes that Lagarde and the IMF follow a standard strategy that is aiming to destabilize the Greek government. In order to avoid such a development, the Greek government’s proposal will be that of a contingent mechanism, that will perform automatic, horizontal cuts to all budget codes, in the path of Germany’s already legislated and active in Germany. Greece believes that this solution is more “fair” on citizens, but on the issue of cuts in sensitive areas and the social fairness of those cuts, no comment was offered.

Despite the long strike of the media in Greece, the contingency measures mechanism is spinned as “fourth bailout package” by local media. Eurogroup’s President Jeroen Dijsselbloem, answered the Greek Press, on ECOFIN’s press conference: “Let me make quite clear”, that “that’s absolutely not the case,” but this has to do with the future, on the case that the existing package of measures won’t deliver.

“The contingency measures are there to safeguard that the targets of the third programme are achieved and to give reassurance to creditors and investors. They are not a fourth programme. President Juncker made this clear earlier this week as well,” comments an EU source to New Europe. European Commission President Jean-Claude Juncker has expressed the opinion that Greece won’t need contingency measures. It seems that the Commission keeps being at this side of the road. However, the Berlaymont understands that the measures are there to reassure all sides. As talks resume to smooth the edges before the final part of the review is agreed, prior to the kick-start of debt talks, the case is that no individual institution will propose the contingent measures, as there is an ongoing discussion until next Thursdays 28 April Eurogroup.

On debt reconstruction talks, no haircut or major change is expected, as German Finance Ministry leaks insist on a “light debt reconstruction” as German Der Spiegel reports. Wolfgang Schaüble’s Ministry supports the idea of ESM extending 10 year bonds to 30 years in order to keep providing cheap liquidity to Greece. ESM would charge Greece on 1,5% interest rate until 2045. If the Greek government would emerge markets on debt of over €300 million, every 1% decrease of interest rate would save Greece €3 billion per year, that corresponds to 2% pf Greek GDP.

However, this solution has a major drawback from Germany;s point of view, as it means that Greece has depend on ESM longer. On the other hand, German sources suggest that “this costs us nothing”, pointing to this solution as the most preferable at the moment, as this doesn’t mean that Greece will have to extend the programme to a bigger time period.