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28th Nov 2021

Greece passes new austerity measures, hopes for debt deal

  • "We are passing to a positive agenda for the country and society," said Greek prime minister Alexis Tsipras about the bill. (Photo: Spyros Papaspyropoulos)

The Greek parliament adopted a new set of austerity measures on Thursday evening (18 May), which the government hopes will allow a new tranche of international aid and debt relief measures.

The bill includes pension cuts and tax increases in order to save €4 billion until 2020. It was passed with only 153 votes (out of 300 MPs), which came from the MPs supporting the coalition government of Alexis Tsipras.

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  • German finance minister Wolfgang Schaeuble has been wary of granting Greece debt relief before it has done enough to implement the bailout programme. (Photo: World Economic Forum)

The measures had been agreed in principle at a Eurogroup meeting in early April and hammered out in talks between the Greek government and experts from Greece's lenders – the European Commission, the European Central Bank, the European Stability Mechanism and the International Monetary Fund (IMF).

In exchange for the measures, to be implemented immediately, the lenders and eurozone finance ministers also agreed to include "expansionary measures" in the bill, such as support for children, renters or poor pensioners.

These social measures will be implemented only if Greece reduces its deficit and reaches a budget primary surplus of 3.5 percent of GDP.

"We are passing to a positive agenda for the country and society," Tsipras told MPs ahead of the vote.

He said that Greece was "heading toward a comprehensive agreement to extricate the country from the memorandums" – the three bailout agreements signed since 2010 that outline the budget cuts and structural reforms.

Tsipras insisted that the country will exit the memorandum programmes in 2018, when the current one ends, and afterwards will not need another one.

"The fourth memorandum is all yours," conservative opposition chief Kyriakos Mitsotakis told Tsipras in the debate ahead of the vote.

Mitsotakis said that "the homeland is being turned into an austerity colony with no end".

50/50 chances

The bill adopted on Thursday was a condition to close the second review of the bailout programme signed in 2015, and unlock a new loan – which could be up to €7 billion.

Eurozone ministers will review it at a Eurogroup meeting on Monday. But their green light for the new payment will mainly depend on the IMF, which has said it would sign it off, but only if it thinks that the measures also have a positive impact on Greece's long-term debt.

The IMF, whose rules make it impossible to help countries whose debt is not sustainable, says that the measures agreed so far are not enough to reduce Greece's debt and that the EU must agree on debt relief measures.

Even if the last Greek austerity bill complies with the creditors' demands, no payment will be made if the IMF is not satisfied.

An EU official said earlier this week that the chances of an agreement on Monday were "between 50/50 and 50/50".

"It's not a secret that there are differences between the institutions," the official added.

The main obstacle to reaching an agreement has been Germany. German finance minister Wolfgang Schaeuble has been wary of granting Greece debt relief before it has done enough to implement the bailout programme.

"We are leaving the game at several parties, it is now a game at two," a eurozone minister said after the last Eurogroup meeting, referring to the IMF and Germany.

He said, however, that it would "be easier to deal with" than the usual negotiations between the EU institutions, Greece and eurozone countries.

Moderate recovery

"We deserve and we expect from Monday's Eurogroup a decision regulating debt relief which will correspond to the sacrifices of the Greek people," Tsipras said on Thursday.

Although there is no deadline for an agreement, Greece would need fresh money before it faces debt repayments in July.

The uncertainty over the conclusion of the second review, which should have been done more than a year ago, also has consequences for the Greek economy.

Last week, the European Commission revised its growth forecasts downwards for Greece. It said it expected 2.1-percent growth this year, down from a 2.7-percent growth forecast in an earlier assessment in February.

"The recovery looks set to remain moderate due to the delays in the closure of the second review of the [bailout] programme," the EU commission noted.

It said that "improving consumer and investor sentiment is expected to be the fundamental driver of growth in the near term".

While Greek MPs were adopting the new set of austerity measures, clashes took place outside the parliament in Athens. Demonstrations had been organised to protest against the bill while the country faced a second day of strikes in a row.

Eurogroup makes 'progress' on Greek deal

Eurozone ministers endorsed an agreement in principle between the Greek government and its creditors over a new package of reforms. But talks on fiscal targets and debt could still block a final agreement.

Greek bailout talks to 'intensify'

Greece and its creditors will meet in Brussels later this week to unblock negotiations needed for a new tranche of financial aid, amid concerns over the country's economic situation.

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