22nd Mar 2018

Greece urged to deliver pension reform quickly

  • "The completion of the first review is of decisive importance," said Dijsselbloem (r), with Greece's Tsakalotos. (Photo: Council of the EU)

Ambiguities were back Thursday (14 January) between Greece and its creditors as the Greek government was commended for its implementation of the bailout programme, while at the same time forced to recognise the role of the International Monetary Fund and reminded that it risked being short of money again soon.

At a Eurogroup meeting of eurozone finance ministers in Brussels, in which the IMF's Europe director also participated, Greece was told to start and conclude quickly the first review of the bailout programme in order to get a new tranche of aid and start the discussion on debt relief.

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"The Greek government has really done a lot of work on a number of packages of reforms," Eurogroup president Jeroen Dijsselbloem said Thursday before the meeting, while noting that "a lot of work is in front".

"The completion of the first review … is of decisive importance for the overall success of the programme and essential to get Greece's economic recovery back on track," Dijsselbloem said after the meeting.

Experts from the creditor institutions - the European Commission, the European Central Bank (ECB), the European Stability Mechanism (ESM) and the IMF - are expected in Athens next week to start the review.

'Reforms must be ambitious'

The centrepiece of the review will be the reform of the Greek pension system, which Athens presented last week and on which the Eurogroup asked for more information.

The reform unifies all the pension schemes into a single system and raises employer and employee contributions, but the government ruled out any cut to the pensions.

The creditors "need to have the data on what the pension reform looks like", Dijsselbloem said.

They will accept the reform if they judge it makes the pension system sustainable, helps reduce the fiscal gap and doesn't harm the Greek economy's competitiveness.

"There are a number of open fiscal issues and they are very strongly related" with the pension reform, Dijsselbloem noted.

The IMF, which is still part of the creditors' "Quartet" but has yet to decide whether to participate in the third Greek bailout agreed last summer, stands out as tougher than other creditor institutions. It has called for a more radical pension reform to ensure that Greek finances go back to some kind of balance.

In an interview with Germany's Sueedeutsche Zeitung published Friday, IMF director Christine Lagarde repeated that "Athens must carry out significant economic reforms".

"Reforms must be really ambitious," she added

IMF's conditions

In recent weeks the Greek government has said it wants the IMF out of the programme. Prime minister Alexis Tsipras has said the fund's role is "not constructive" and "not necessary".

But on Thursday Greece had to back down and accept the IMF's presence and role in the first review.

It is "respected and acknowledged by the Greek govenerment and that is an official position," Dijsselbloem insisted.

The IMF, for its part, "has been very clear that they still want to be part of the programme and are ready to step back in," the Eurogroup president added. "But they have a number of conditions."

"Fiscally it has to add up, the primary surplus [a budget surplus before payment of the debt is counted] has to be delivered, pension reform is an important part of that, and they need to have a good feeling about debt sustainability," Dijsselbloem set out.

In addition to being forced to accept the IMF's presence, Greece was also told that concluding the review was "urgent" if it wanted to get the money it needs to repay its debts.

"The liquidity situation will become tight again in the next few months," warned the ESM director, Klaus Regling.

Regling pointed out that "there is a small primary deficit" and that during the first quarter of the year Greece will face debt service obligations "of about €4 billion".

'Don't interpret too much'

EU sources cited the end of February as a critical moment. Greece is expected to repay bonds in February and March, and two IMF instalments of a total of €870 million are scheduled for March.

The Greek minister responsible for the pension reform, George Katrougalos, said Thursday that the bill would be tabled in January, "so the vote may take place in the first ten days of February".

The warning of a liquidity crisis combined with the stress of the IMF's conditions could be seen as a way of forcing the Greek government to pass a deeper and more painful reform than it is ready to accept.

Athens has said it will not "reduce the main pensions for a 12th time".

But the Eurogroup message could also be seen as a message to the Greek opposition and the public, helping the government pass quickly a controversial bill under the apparent pressure of the creditors.

Tsipras and finance minister Euclid Tsakaloros "think that getting that part of the programme done is crucial of their economic recovery, which is about confidence building," Jeroen Dijsselbloem said Thursday.

After a year 2015 full of tensions and deadlines, it is difficult to anticipate how the upcoming discussions will go.

"You should not interpret to much" what was said Thursday, a top EU official told EUobserver after the Eurogroup meeting.

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