Greece’s creditors nervous as Tsipras appears to walk away from structural reform goals

EPA-EFE/ORESTIS PANAGIOTOU

Greek Prime Minister Alexis Tsipras (R) talks with vice president of his Government Yannis Dragasakis (L) during a cabinet meeting at the parliament in Athens to discuss the 2019 draft budget, August 31, 2018.

Greece’s creditors nervous as Tsipras appears to walk away from structural reform goals


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After successfully concluding its three-year European Stability Mechanism stability support programme and with its place at the heart of the Eurozone and EU secured – a development that Brussels is publicly hailing as a successful testament to the efforts of Greece’s government and the Greek people, the financially strapped country’s commitment to reform and solidarity with its European partners remains in question as the current Syriza-led coalition government battles for its political life amidst widespread anger over Greek Prime Minister Alexis Tsipras’ disregard for the public’s opposition to an agreement over the 27-year-old Name Dispute with neighbouring Macedonia/FYROM and his willingness to openly violate the agreed terms of a structural reform programme with Athens’ creditors.

A total of €61.9 billion in loans have been provided to Athens under the stability support programme on the basis of the implementation of a comprehensive and unprecedented reform package. At its core, the programme took a coordinated approach to tackle longstanding and deep-rooted structural issues that contributed to Greece experiencing successive economic crises over the course of the last decade.

The hope was that these supposedly transformative reforms would lay the foundations for sustainable recovery and put in place the necessary, fundamental conditions needed to encourage long-term growth, job creation, and sound public finances.

Following the August 20 conclusion of the EU’s third bailout package, the Tsipras government has creditors worried after his ruling coalition recently questioned the need to cut social security spending after Athens reached its annual fiscal targets.

Tsipras originally agreed with Greece’s creditors more than two years ago to make further cuts to the country’s social security spending by January 1, 2019 and to lower the tax-free annual income cap to under €6,000 by the first of January 2020 – a move that was expected to inject an additional €650 million into the state coffers on an annual basis.

Syriza is now questioning the need for further changes to the social security system, arguing that having exceeded all annual fiscal targets renders the austerity measures, including the social security cuts, unnecessary.

Greece’s institutional creditors, however, continue to press Tsipras, arguing that having exceeded the annual fiscal targets is not a sufficient enough reason to suspend the spending cuts. By questioning the cuts, the Greek government has forced creditors to demand a detailed plan from Tsipras on how he plans to stick to the agreed structural reform programme while simultaneously maintaining the Greek social security system’s sustainability based on current projections.

The International Monetary Fund – the architect of the structural reform programme – has been adamant that another round of social security spending cuts is necessary for Greece to maintain the system’s sustainability.

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