Greece back on agenda as creditors demand pension reforms

Swift completion of the first bailout review is vital for Greek debt relief to move ahead

Greek prime minister Alexis Tsipras: his decision to go to the polls in September proved wise. The subsequent general election – Greece’s fifth in six years – served to purge Syriza of its most radical left members. Photograph: Philippe Wojazer/Reuters

Greek prime minister Alexis Tsipras: his decision to go to the polls in September proved wise. The subsequent general election – Greece’s fifth in six years – served to purge Syriza of its most radical left members. Photograph: Philippe Wojazer/Reuters

 

Euro zone finance ministers gather in Brussels today for the first eurogroup meeting of the year which is likely to be dominated by Greece.

The first anniversary of last January’s Greek general election is approaching, an event that shattered the European political landscape.

The victory of Alexis Tsipras on January 25th ushered in a period of instability, culminating in a bitter battle over a third bailout package and pushing Greece to the brink of a euro zone exit.

Six months later Greece is back on the agenda. The period since the negotiation of the third Greek bailout has been relatively subdued.

Tsipras’s decision to go to the polls in September proved wise. The subsequent general election – Greece’s fifth in six years – served to purge Syriza of its most radical left members, who unsurprisingly railed against their party’s acceptance of a third bailout. Tsipras emerged stronger, managing to retain the support of his electorate, according to opinion polls, as they saw their prime minister as a victim of euro zone oppression rather than a leader who had reneged on his electoral promises.

Demanded by creditors

But as the new year starts and the reality of a third bailout programme begins to bite, challenges are looming.

Next week, the first review mission under the third bailout programme is due to begin. Originally expected before Christmas, it has already been delayed and will stretch at least into next month. Among the most contentious conditions being demanded by creditors is reform of the pension sector, which EU officials still describe as the most expensive pension system in Europe. Greek negotiators have delivered a 170-page pension document – in Greek – to Brussels in advance of the review mission which officials are now wading through. So far the reaction appears to be relatively positive from lenders, who have welcomed, in particular, proposals to merge the state’s six pension funds into one.

Fiscal targets

Kyriakos Mitsotakis

The son of a former prime minister and member of a well-known political dynasty, the 47-year-old is widely seen as a serious political alternative to Tsipras.

Following his appointment as leader of the opposition he promised to confront an “ineffective and populist” government.

With the Greek government having seen their majority reduced to three, cross-party political buy-in for reform measures is essential for the successful completion of the first review mission.

A parliamentary vote on pension reform will be the first test, with Mitsotakis already indicating he opposes the government’s plan to fill the pension gap by raising employers’ contributions. For all parties, swift completion of the first bailout review is vital if Greece is to move forward with one of the government’s main priorities: debt relief. The country’s lenders have indicated that debt relief measures will only be considered on completion of the first review.

The continuing involvement of the IMF is also crucial. Despite a cooling in relations between Athens and the Washington-based fund, a number of European countries, particularly Germany, are demanding IMF involvement in the programme.

As negotiators begin a crucial few months in the Greek bailout talks, the euro zone economy will be hoping discussions on the Greek bailout progress without incident.

The EU cannot afford another crisis any time soon.

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