Athens Digest 06.08.2018 (weekly brief)

• Minister quits amid wildfire furore

• IMF sees post-programme struggle

• Defence cuts prompt German lawmakers to back tranche

• Third bailout was avoidable, says Moscovici

• Stournaras: Stick to reforms to reassure investors

• doBank to help Greece’s Big Four address NPEs

# Public Order Minister Nikos Toskas submitted his resignation 11 days after the devastating wildfires in eastern Attica which claimed 91 lives. With the state of emergency imposed for the fire having elapsed, Prime Minister Alexis Tsipras accepted Toskas’ resignation after rejecting his initial offer to step down last week. His resignation came amid mounting criticism from the opposition that the government was allegedly trying to shrug off responsibility. Toskas’ departure was followed last night by the appointment of new heads of the national police and Fire Service.

# The IMF has issued a sobering assessment of Greece’s post-bailout prospects, warning that “risks are tilted to the downside” despite significant improvements made over the past eight years. The Fund warned that the national debt remained unsustainable in the long-term _ questioning the optimism of official budget and growth projections. The long-awaited report warned that Greece’s recovery was unlikely to produce a long spell of high-growth and described the country’s reform agenda as “unfinished.” (Read Article IV here)

# Government has agreed to trim EUR 28 million of armed forces expenditure _ clearing the way for Greece to receive a delayed loan tranche. German lawmakers voted in favour of the EUR 15 billion disbursement after Athens detailed the alternative cuts made in place of keeping lower VAT rates for Greek islands affected by the refugee crisis. To underscore the message of careful monitoring, the German MPs placed controls (parliamentary approval requirements) on contingent debt relief measures promised to Greece after the bailout.

# Greece could have avoided the third rescue programme if it had implemented pension cuts and other reforms that are still required four years later, Pierre Moscovici said in an article that shared blame for bailout mistakes. Writing in Germany’s Die Welt newspaper, the EU Finance Commissioner said lenders had underestimated the severity of Greece’s structural problems and options available to address them. But he stressed that “much more still needs to be done … for Greece to regain a solid footing.”

# The governor of the Bank of Greece insists Greece must stay the course of reforms otherwise shaky investor confidence could be compromised. Speaking to the Financial Times, Yannis Stournaras said markets will monitor Greece to see if it continues to implement additional measures in the post-bailout era. He said the June debt relief deal with the Eurozone would not be enough to convince investors that Greek bonds are a solid investment. “As soon as we are out on our own, the markets will take a tough approach. They want to see how we are going to behave after August 20,” he said. “They (investors) will be monitoring every move by the government as far as economic policies are concerned. If they feel that we’re backtracking, they’ll be off. If they feel we’re honouring our commitments, they’ll give us a chance.”

# Italian NPE management specialists doBank SpA have reached an agreement with Greece’s leading lenders to manage a portfolio of Non-Performing Exposures worth EUR 1.8 billion. doBank will support Piraeus Bank and the three other systemic banks (Alpha Bank, National Bank of Greece and Eurobank) in the exclusive management of common non-performing exposures of more than 300 Greek SMEs with approximate nominal value of EUR 1.8 billion.

On our Radar: Hitman’s Holiday?
The transfer on Friday of Dimitris Koufodinas, the convicted hitman of the now defunct November 17 terror group, from the high-security Korydallos prison in Athens to an agricultural jail in Volos, central Greece has triggered a storm of protest at home and abroad _ including opposition parties and relatives of the group’s victims. New Democracy leader Kyriakos Mitsotakis slammed the government for choosing to “serve serial killers” at a time when it should be by the side of victims the country’s deadly wildfires. Justice Minister Stavros Kontonis defended the transfer saying it does “not constitute special treatment, a sentence reduction, or partially unrestricted confinement.” U.S. State Department spokesperson Heather Nauert condemned in “the strongest terms furloughs or any easing of his prison stay.” She tweeted that Koufodinas murdered 11 people, including U.S. personnel and “is inspiring the next generation of terrorists.”