The National Bank of Greece Governor Yannis Stournaras gave a stark warning about the risk of Greece failing to reach an agreement with its creditors on a set of measures attached to the country’s bailout as Prime Minister Alexis Tsipras reiterated his government won’t succumb to “unreasonable” demands for additional pension cuts.
The European Union is now much less prepared to deal with another Greek crisis, Stournaras wrote in an article published in Kathimerini newspaper, in an unusually strong public intervention, as Europe’s most indebted state braces for negotiations with creditor institutions on a set of tough economic steps, including pension and income tax reform, Bloomberg reported.
A repeat of the 2015 standoff which pushed Greece to the verge of leaving the eurozone would entail risks that the country’s economy may not be able to withstand, the central banker said.
After months of brinkmanship which resulted in the imposition of capital controls last summer, the government of Alexis Tsipras signed a new bailout agreement with the eurozone committing Greece to economic overhauls and additional belt-tightening in exchange for emergency loans of as much as €86 billion ($93.4 billion). Greece will implement the agreement, Tsipras said in an interview with Real News newspaper published Saturday, adding though, that creditors should be aware that the country “won’t succumb to unreasonable and unfair demands” for more pension cuts.
Greece will reform its pension system, which is on the “brink of collapse” through “equivalent” measures targeting proceeds equal to 1% of the country’s gross domestic product in 2016, Tsipras said. The proposals include raising mandatory employer contributions, according to the country’s Labor Minister George Katrougalos. Creditors oppose an increase in compulsory contributions, as they argue these create a disincentive for hiring workers and declaring incomes.
Negotiations with representatives of the European Commission, the European Central Bank and the International Monetary Fund will be “tough,” and the government is redoubling its efforts to find “diplomatic” support, Katrougalos said in an interview with To Ethnos newspaper, also published Saturday.
The government must implement the agreement that it negotiated last summer and parliament must back it, Stournaras said, blaming the capital shortfall of Greek lenders identified last year on the prolonged wrangling between Tsipras and eurozone states.
In addition to pension reform, creditors are also asking Greece to implement more belt-tightening in order to meet an agreed primary surplus target of 3.5% of GDP, excluding interest payments, by 2018. According to Greece’s Finance Minister Euclid Tsakalotos, the International Monetary Fund isn’t convinced how the country will meet this target.
