Irish Times – As the European Union embarks on another year expected to be dominated by the refugee crisis and the threat of Brexit, a resurgent Greek crisis is something it could do without.
So it is unsurprising that it was all smiles in Brussels on Thursday as eurogroup finance ministers gathered for their first meeting of the year.
EU economics chief Pierre Moscovici spoke of a “mindset change” in Greece since the acrimonious bailout negotiations last year. While the Greek parliament already pushed through a set of “milestones” before Christmas, the real negotiations begin now.
Greece is entering an important few weeks. Bailout monitors are expected to return to Athens next week to begin the first troika visit. So far, creditors have given a tentative welcome to a draft pension reform plan but have warned that further details are needed. Though the ECB confirmed this week that emergency liquidity assistance provision to the Greek banking sector has dropped significantly, worryingly, European Stability Mechanism (ESM) chief Klaus Regling warned that liquidity conditions could again become tight if the review is not concluded swiftly, noting that Greece faces debt repayments of €4 billion in the first quarter.
But 2016 isn’t 2015, and thus far Athens’ new €86bn bailout programme has been chugging along comparatively smoothly. But could that change? Eurozone officials have always viewed the first quarter of this year as a crunch point when three elements must come together: completing the new programme’s first review; hashing out a deal on debt relief; and convincing the International Monetary Fund to join in for a third rescue.
In a memo the Syriza-led government has circulated in Brussels, officials note last year’s agreement talks of €1.8bn in “savings” not “cuts”, and they are proposing to close the gap by increasing employer payments into the system rather than slashing benefits. The European Commission appears willing to work with that, but the IMF remains sceptical – increased payments will raise labour costs and hit competitiveness. There are also concerns that Syriza is protecting middle-class pensioners, giving them incentives to retire early, rather than just the working poor.
One senior EU official called the proposal “very ambitious”, particularly its consolidation of Greece’s mish-mash of pension funds into a master fund for all.
But a more difficult problem may be lying around the corner. One key pillar of the programme is Athens’ promise to get to a primary surplus – revenues minus spending when interest on debt isn’t counted – of 3.5 per cent of economic output by 2018. As it stands, Greece is about 1 per cent short of that goal, and measures to get to the 2018 target must be included in the 2016 budget. That will take a lot of heavy lifting.
Athens is keen to get the review closed quickly so that it can get to the politically popular debt relief discussions, and Syriza officials said they have emailed bailout monitors inviting them back to Athens next week to finish the review. They even appear heartened by the positive vibes coming out of Berlin yesterday during a closed-door meeting between Euclid Tsakalotos, the Greek finance minister, and his irascible German counterpart Wolfgang Schäuble.
Still, eurozone officials remain sceptical that things will move so quickly, and are eyeing €1.4bn in debt payments Athens owes on February 24. If Greece needs new bailout cash to pay that bill, they may be motivated to make concessions. If they have enough in the kitty already, the review could go well into March – or longer.
