22nd Mar 2018

Greece, creditors in 'observation round'

  • Evzones guarding the Tomb of the Unknown Soldier in Athens. Officials from the Quartet arrive in the Greek capital, probably on Monday (Photo: Barcex)

For their first Eurogroup meeting of the year, on Thursday (14 January), eurozone finance ministers will discuss the state of play of the Greek bailout, with difficult discussions in mind ahead on pension reforms and debt relief.

A first version of the pension reform was sent last week to Greece's lenders, the so-called "Quartet" comprised of the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund (IMF).

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The reform will be the centrepiece of the first review of the bailout programme, which is due to start next week, when officials from the Quartet arrive in Athens, probably on Monday (18 January).

The conclusion of the review will trigger the unblocking of a new tranche of aid after the €16 billion paid in the summer and autumn.

In the meantime, "we can say it's an observation round," an EU official told EUobserver.

"No side has anything to be upset about, yet," the official said, suggesting that might change when discussions start.

'The hardest part'

Put aside in the autumn, when the priority was stabilising the banking sector and adopting several series of economic, social, fiscal and administrative reforms, the pension reform is a decisive part of the third Greek bailout programme.

"It is the hardest part. After that, the nirvana starts," the official said.

The reform plan presented by the Greek government fuses all existing schemes into one single mechanism. The retirement age will be 67 for workers with at least 15 years of insurance, and 62 with 40 years of insurance.

Employers' social security contributions will be raised by 1 percent and the employee's contributions by 0.5 percent. The government said there would be no cuts to the pensions.

"It's a very ambitious proposal," another EU official said Wednesday. "The merging of funds is a major step ahead."

But the creditors are still assessing the details of the reforms, and the devil could be in the numbers.

The bailout memorandum agreed last August requires Greece to save around 1 percent of GDP in pension expenditures by 2016, after saving 0.25 percent in 2015.

The Greek government says its reaches the targets with the measures taken last year and with the new reform.

But creditors insist that Greece reduce its fiscal gap this year but also for 2017 and 2018, and suggest that the impact of the proposed pension reform could be insufficient.


Concerns that the increase in contributions might have an impact on competitiveness and tax revenues have been echoed by the governor of the Bank of Greece.

Some of the creditors, mainly the IMF, insist on further savings to reduce the fiscal gap, including further cuts to pensions.

"The IMF will be quite tough on pension reforms," the EU source told EUobserver.

So far the IMF is not participating in the third bailout, but is still part of the Quartet. It said it would decide whether to stay or not at the end of the upcoming review.

In December, the Greek prime minister said the IMF was "not necessary" and that its positions and demands on Greece were "not constructive".

"The creditors have to know that we are going to respect the agreement to the letter, but that doesn't mean we are going to succumb to unreasonable and undeserved demands," Tsipras also said early January.

But any agreement on the first review will be "done in full total agreement of all institutions concerned, no matter if they are formally part of this review at that stage or not," the second EU official warned.

In an interview with Germany's Sueddeutsche Zeitung, EU monetary affairs commissioner Pierre Moscovici warned Greece not to "play games with the IMF".

"For many member countries, not only Germany, the participation of the IMF is an absolute necessity," Moscovici said.

New showdown?

So far, the Greek government, which has only a three-seat majority in the parliament and is faced with growing social protests, has said cutting pensions is its red line.

"The government will not reduce main pensions for a 12th time, thereby fuelling recession, which undermines the sustainability of the pensions system, as it happened in the past," a Greek government official said.

For Athens, the bad state of the pension system is mainly the result of the previous two bailouts.

"The currently high ratio of pensions expenditure to GDP has been the abrupt and significant decline of the GDP by 25 percent due to the successive Memoranda implemented during the period 2010-2015," the official said.

The IMF's Europe director, Poul Thomsen, will participate in the Eurogroup meeting Thursday.

Discussions with of one of the fund's top officials will tell whether Greece and its creditors are headed for a new showdown.


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