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Eurozone finance ministers gather in Brussels today for their first eurogroup meeting of the year, and Greece is at the top of the agenda. Not too long ago, that very fact would have sent financial markets into paroxysms. 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.
At today’s eurogroup meeting, ministers will focus on the first of those tasks, and much of the discussion will be where it was during the far-more-contentious negotiations six months ago: pension reform. Under the new bailout, Athens must find €1.8bn in annual savings, and they’re not quite there yet.
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.
Still, people briefed on the talks say Brussels believes it’s a blueprint they can work with. 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. Read more