Greece probably won’t complete its bailout review by the time the euro area’s finance ministers next meet, on Feb. 20, setting the stage for potentially thorny negotiations in the midst of next month’s bitter electoral campaign in the Netherlands.

“We will take stock of the further progress of the second review during the next Eurogroup,” Dutch Finance Minister Jeroen Dijsselbloem said in a statement after a meeting with his Greek counterpart, Euclid Tsakalotos, in Brussels on Friday. “There is a clear understanding that a timely finalization of the second review is in everybody’s interest,” Dijsselbloem said after the meeting, in which representatives of creditor institutions also participated.

Greece is locked in talks with the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund over the conditions attached to its latest bailout. During Friday’s meeting, bailout auditors asked the government to legislate additional fiscal cuts equal to about 2 percent of gross domestic product if the country fails to meet certain budget targets, a person familiar with the matter said after the talks. These contingent measures are the basis for further discussions, the person said, asking not to be named as the matter is sensitive.

While progress was made in the meeting, unreasonable demands from the IMF make a resumption of staff-level talks difficult, a Greek government official said in a text message, asking not to be named in line with policy.

The Greek government has been resisting calls to preemptively legislate contingent belt-tightening for 2018 and beyond, arguing that measures already in place should suffice to meet an agreed goal for a budget surplus — before interest payments — equal to 3.5 percent of GDP. Among the measures the IMF is demanding is pension cuts and a lowering of the threshold at which income tax is paid. Both are red lines the government says it’s not willing to cross.

“Although we expect that the Greek government will implement the required measures, the risk of early elections is increasing given the rising political cost to the government and its slim majority in the parliament,” Moody’s Investors Service analyst Kathrin Muehlbronner said in a note to clients. “Early elections might bring a new and more reform-minded conservative government, but Greece’s economy would be hit again by prolonged uncertainty, after having just started to record positive growth.”

While Greece can stay afloat without any further disbursements of bailout tranches until July, euro area officials have indicated that the stalled review must be completed before the Netherlands, France and Germany enter the final stage of their electoral campaigns this year. Tsakalotos left Friday’s meeting without a precise date set for the continuation of talks with bailout auditors.

“We made substantial progress today and are close to common ground for the mission to return to Athens the coming week,” Dijsselbloem said.

Source: Bloomberg