Despite creditors’ expectations that Greece will achieve a high primary surplus for 2018, the fiscal room left for Greek to use this year is not enough to completely scrap planned the pension cuts that are due in January 2019, as agreed with the country’s creditors, according to the managing director of the European Stability Mechanism Klaus Regling.

“Italy is not Greece”

Turning to Italy, Regling said the Italian has a current account surplus, with the majority of the Italian debt funded by the country, He expressed concern over Italy’s fiscal plans, but added that there was no threat of contagion to other European countries aside from no more than two Greek banks that had partly been affected by Italy and making their situation worse as they already had non-performing loan problems.

“Clearly Italy is not Greece, as Italy doesn’t have same problems that Greece had 10 years ago,” added Regling, warning of growing problems faced by Italian banks due to higher yields on Italy’s debt and the fact that Italian debt is still the second highest in the EU.

“In Italy, there is contagion to the banking sector” because of the falling value of Italy’s debt held by lenders, said Regling, who also added that the current situation in Italy differs significantly from the experiences of Spanish lenders in 2012 when Spain asked the European Stability Mechanism rescue fund a bailout.