Prime Minister Alexis Tsipras finds himself trapped between the pressure being exerted on the Greek economy by the drawn-out negotiations over the second review and the political cost of a painful compromise with the country’s lenders.
It has become clear to the premier and his advisers, especially after the gross domestic product data published last week, that the longer the review drags on, the less the chances of a strong economic recovery this year.
At the same time, though, the prime minister is aware that there are several issue on the negotiating table that he is not in a position to accept because of the lack of support from his party and MPs in particular.
The government has yet to agree with the institutions the exact volume of extra fiscal measures it will have to adopt. Discussions have centered on 2 percent of GDP, or 3.6 billion euros, in new interventions but Athens is hoping to bring that number down, especially given the strong fiscal performance last year.
There is an agreement that one of the new fiscal measures will be the reduction of the tax-free threshold for personal incomes, which is due to be brought down to 5,900 euros from 2019, and will account for 1 percent of GDP. However, there is a disagreement over the reduction in pension spending. The International Monetary Fund is pushing for 1 percent of GDP to be lopped off expenditure in one go in 2020, whereas Athens wants to spread the reduction over several years.
The fiscal countermeasures that Greece will be able to implement if the primary surplus target is met also have not been agreed. The government’s proposals include a 15 percent reduction in the ENFIA property tax, a 2-point cut to the corporate tax rate and the lowering of the solidarity tax.
The biggest gap, however, is on the issue of labor reforms. The IMF does not want any changes made to labor legislation even though the government is keen to bring back collective bargaining across the board. The Fund does however want changes to the laws governing strike action. It also wants companies to be able to make decisions on mass dismissals without the intervention of the Labor Ministry.
A Greek government official who is taking part in the negotiations said the coalition’s goal is for there to be only a couple of unresolved issues by March 20, when eurozone finance ministers are due to meet in Brussels. He said this would help Greece’s efforts to reach a “respectable” compromise and avoid delays that work against the country’s interests.