BUSINESS

Pension bonus causes harmful sideshow

NICK MALKOUTZIS

TAGS: Analysis, Politics, Economy, Finance

Dozens of  pensioners from various parts of Greece gathered in central Athens on a bitterly cold Thursday night last week to protest the fact that Prime Minister Alexis Tsipras had just handed each one of them around 300 euros as a Christmas bonus. One either had to admire their chutzpah or be appalled by their sheer gall.

In making the gesture to some 1.6 million Greek pensioners, Tsipras jeopardized any trust between Athens and the institutions and blew any chance of concluding the review of Greece’s program soon. It was a huge risk to take, especially when some of those due to receive the unexpected early Christmas present did not seem so enthused by the idea.

The problem with Tsipras’s pledge to redistribute 617 million euros from the excess primary budget surplus for 2016 was not so much the fact that he decided to use this money, but that he used it to deliver a gift to pensioners and appeared not to consult properly with the country’s lenders.

Nobody can deny that many of Greece’s pensioners have been treated dreadfully during the crisis and that there was a sense of fairness in the way the money was shared out, with the lowest-income retirees receiving the highest payments. But by receiving regular monthly payments when others live in complete uncertainty, pensioners are still in a minority in Greece.

Many suppliers to the state, for instance, have not received payments for months on end. The government has racked up 6.3 billion euros in arrears. Reducing this debt would have been a fairer use of the 617 million euros. It may also have been more beneficial in economic terms as it would have come with a multiplier effect as the firms receiving money could, in turn, have paid staff, suppliers, their taxes and maybe even reinvested.

Tsipras, though, chose to hand the money to pensioners because it made more political sense. For starters, 1.6 million voters were on the receiving end of the handout and the move was executed within days of being announced, in time for Christmas.

An opinion poll conducted by Pro Rata for Efimerida ton Syntakton daily indicated that 50 percent of respondents had a positive view of the pension handout, while 19 percent had a neutral view. This suggests a decent level of public approval for the measure – a rare positive reaction for the coalition. The proposal was also backed by a strong majority of 196 MPs in Parliament despite New Democracy changing its stance and abstaining from the vote after initially saying that it would support the measure.

Any domestic political gains, though, are far outweighed by the unnecessary friction Tsipras’s decision caused with the institutions. The process followed by the Greek government seems to have not been within the spirit of its bailout agreement. The memorandum of understanding states clearly that Athens must consult with the institutions in advance before it takes any decision that relates to using extra revenues from its budgetary over-performance.

It seems that in this case, the Greek coalition failed to keep its lenders fully informed of its plans, perhaps because it knows they would have raised objections. The creditors would not have been able to block the excess surplus being redistributed (Antonis Samaras did the same as prime minister in 2014) but would have certainly wanted the 617 million euros to be used to reduce arrears or for some other purpose than supplementing pensioners’ income, which also serves to create the impression there may be similar handouts in the future.

Testing the often-shaky bonds of trust between Athens and its creditors at any time runs the risk of being counterproductive; doing so when a crucial review is at an impasse and the lenders have begun arguing between themselves seems to be tempting fate.

With the International Monetary Fund and the European Commission engaged in a war of words via opinion pieces, there did not seem much to be gained by Greece attracting attention to itself for the wrong reasons. The director of the IMF’s European Department, Poul Thomsen, and the Fund’s director of research, Maurice Obstfeld, argued in a blog post early last week that Greece needed to adopt further pension cuts and to drop the tax-free threshold to meet a 3.5 percent of gross domestic surplus target in 2018. In an op-ed published in the Financial Times, European Economic Affairs Commissioner Pierre Moscovici disagreed with this interpretation and argued that these measures are not needed.

This dispute over the Greek fiscal performance two years from now is the essence of what is holding up the completion of the review, which is the key to lifting the uncertainty that has lingered over Greece for so many years and hopefully unlocking some economic potential. It is not clear how creating an avoidable sideshow over the use of the excess primary surplus from 2018 helped the country’s cause at this crucial juncture.

The pension bonus puts something extra in Tsipras’s armory should he choose to head for snap elections if the review process stalls but does not contribute to helping overcome the impasse. In fact, it gave Germany an opportunity to flex its muscle and force the European Stability Mechanism to suspend for the time being the implementation of the short-term debt relief measures that were only rubber stamped by eurozone finance ministers on December 5. This was a clear warning shot across the Greek government’s bows.

Where all this leaves us is that the atmosphere between Greece and its lenders, as well as between the institutions themselves, has been poisoned and each side has moved further away from a possible compromise in the days following the December 5 Eurogroup, when a rare opportunity to separate Greece from the crisis – perhaps for good – was missed.

The tension is not all of Greece’s making but the government has not helped itself. Worst of all, the main problem remains: How can Athens, and the lenders who appear to be on its side, reconcile the fact that the IMF is demanding more than 4 billion euros in new measures to rejoin the Greek program and that Berlin appears to subscribe to this view?

It is clear that the current Greek government is in no position, nor does it have the appetite, to go to Parliament to ask for support for such a package. What should be considered, though, is whether any Greek administration could pass such measures. It would have been advisable for all sides involved in the Greek program to ponder this and try to work to a compromise over the last few days rather than become absorbed in a sideshow.

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