Greek Pension Reform Targeted by Lawmakers Before Bailout Review

Eleni Chrepa, Karl Stagno Navarra

Greek lawmakers are debating pension and income tax reforms that will be key to unlocking international aid as European creditors considered a proposal that would burden Athens with additional austerity measures.

The bill -- part of a 5.4 billion-euro ($6.2 billion) belt-tightening package needed to secure further aid from the euro area and the International Monetary Fund -- will be put to a vote later Sunday, a day before Greece meets with euro-area finance ministers to review the status of the bailout. The Athens government late Friday proposed targeting 200 million euros in revenue by lowering the income tax-free threshold to 8,363 euros and in breach of a “red line” of 9,100 euros.

Euro-area governments are reviewing whether to release the second installment of an 86-billion-euro bailout for Greece, six months after it was scheduled. As the delay weighs on the nation’s ability to meet debt payments in July, the IMF has said it would be open to disbursing a new loan that would be separate from the European bailout. However, the fund has questioned Greece’s ability to post a fiscal surplus before interest payments of 3.5 percent of gross domestic product within two years, as stipulated under the European program.

The finance ministers on Monday won’t just discuss the austerity measures attached to the latest review of Greece’s bailout, but also possible debt-relief initiatives, on the backdrop of persistent IMF demands for less ambitious fiscal targets to be set for Europe’s most indebted state.

More Austerity

Greece’s European creditors circulated a draft memorandum on Saturday with additional austerity steps in the event the nation misses certain budget targets, according to a copy of the document obtained by Bloomberg News. The measures will equal the degree by which the targets are missed, as much as 2 percent of GDP. The proposal, which will be discussed in the Eurogroup meeting, seeks legislation that would automatically reduce certain expenditures and increase tax revenue.

But German Vice Chancellor Sigmar Gabriel on Saturday said the finance ministers need to find a way to end Greece’s “vicious circle” of seeking new credit each year.

“Greece needs relief of its debt burden," he said, according to a report in Die Welt newspaper. "It would be completely wrong now to keep putting new austerity measures on Greece."

Greek Finance Minister Euclid Tsakalotos told lawmakers on Friday that these so-called contingency measures weren’t “constitutionally feasible.” The government will only propose a safety mechanism and no specific contingency steps during the meeting, Tsakalotos said. “IMF and Germany must reach common ground” and find a “sustainable solution on Greece,” he said.

The IMF views previous contingency steps proposed by Greece as unsatisfactory, according to Managing Director Christine Lagarde in a May 6 letter to euro-area officials. In her letter, Lagarde said the fund won’t join a European bailout of Greece until those differences over the budget plan are resolved.

The government’s “subliminal message to creditors is therefore this: if you insist on contingency measures, you will end up with the collapse of my government and early elections,” Eurasia analyst Mujtaba Rahman wrote in a note to clients May 6.

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