Greece: Loan extension deal purposely vague to help approval

Staff Writer
Columbus CEO

ATHENS, Greece (AP) — Greece's finance minister said Friday that an agreement with its European creditors to extend its international loan agreement by four months was intentionally vague to ensure the countries that need to have it ratified by their parliaments would be able to do so.

Yanis Varoufakis told Ant1 television that the vagueness in the agreement reached with the eurozone's finance ministers was what Greece's EU partners wanted. The parliament in Germany, the largest single contributor to Greece's bailout, voted the deal through on Friday.

Greece was granted the extension by its European creditors last week in exchange for a commitment to budget reforms Varoufakis laid out in a document sent to Brussels. The list is a policy plan but does not contain specific measures or figures.

"We are very proud of the degree of ambiguity. And I use a term, constructive ambiguity," Varoufakis said.

As an example, he noted the extension deal doesn't specify how much of a primary surplus — the budget surplus without debt servicing — Greece must have. The actual bailout agreement, under which 240 billion euros in rescue loans from other eurozone countries and the International Monetary Fund were earmarked for Greece, specifies 4.5 percent primary surplus.

Greece says anything above 1.5 percent is unrealistic. The recent agreement says only that Greece has committed to "appropriate primary fiscal services."

Varoufakis said this vagueness was asked for by Greece's EU partners, as including a figure below the original requirement would have made it appear that the requirements were softening for Greece, which might have been unpalatable.

"I want to be the first finance minister who will not refer to a number if he doesn't think he can achieve it. I will never give you a quantitative target that I can't achieve," the minister said.

On the issue of increasing value added tax, Varoufakis insisted it would not be increased on islands or border areas, for medications, food, books. VAT was reduced in some areas and for some items from 23 percent to 13 percent, but Greece's creditors have sought for it to be increased in order to raise tax revenue for state coffers.

"I will search to find a tax rate on an insignificant item so we can show goodwill," Varoufakis said.

Greece's new left-wing government, elected Jan. 25 on a promise to abolish the hated austerity measures that accompanied the country's bailout, has insisted it won a significant victory with its loan extension agreement.

But critics, including several within the governing Syriza party, have accused the government of capitulation and backtracking on its election promises.

About 8,000 Communist Party supporters gathered outside Parliament on Friday evening in the first sizeable anti-government demonstration as Prime Minister Alexis Tsipras convened his Cabinet.

The government, meanwhile, has a liquidity crunch to deal with. The country's creditors have said they will not release the remaining funds in Greece's bailout until the government presents concrete measures, expected to be agreed on by April.

Money has been tight, and figures released Friday showed Greece's economy shrank slightly in the fourth quarter of 2014. The statistics authority said the economy contracted 0.4 percent compared with the third quarter, on seasonally adjusted basis. It was up 1.3 percent compared with the fourth quarter of 2013.

Greece's economy has lost a quarter of its value compared to pre-crisis levels in 2008.