The 8 labors of Greece as it navigates bailout barriers

The 8 labors of Greece as it navigates bailout barriers

Finance ministers from the 19 European nations that use the euro gather in Brussels on Thursday to discuss yet another stalled Greek bailout review. The meeting comes as the nation’s stocks have fallen for seven consecutive days, sending equities to a 26-year low, and as mounting European criticism of Greece’s handling of a refugee crisis threatens to unravel the European Union’s passport-free travel zone.

Greek creditors, including the European Commission, The European Central Bank and the International Monetary Fund, have to assess if the cash-strapped country is upholding the requirements prescribed in an 86 billion-euro ($96.7 billion) bailout it won last year. These institutions need to sign off on a review of the bailout before more funding can be released and debt relief talks can begin.

Here are answers to some of the most frequently asked questions about Greece:

Why is the Greek bailout review stalled, again?

Under the latest bailout agreement, Prime Minister Alexis Tsipras’s government has to overhaul the country’s pension system and income-tax code, propose new belt-tightening measures so that it achieves a budget surplus before interest payments equal to 3.5 percent of Greek gross domestic product over the medium term, and create a new privatization fund. The list required to complete this bailout review would be a tall order for any government, let alone for a coalition that promised to put an end to austerity and relies on a wafer-thin parliamentary majority of three seats.

What are bailout authorities up to on Greece’s program?

Greece is in the middle of the first overall program review of its bailout deal. The commission, the IMF and the ECB are working with officials in Athens to see if Greece is keeping up with its requirements and to set out the next targets for unlocking aid. The European Stability Mechanism, the euro-area’s firewall fund, is also taking part. Jeroen Dijsselbloem, who runs the meetings of the euro-area finance ministers, said it could take weeks to sort out.

What’s the political situation in Greece?

After two defections in November which left the governing coalition with a slim three-seat majority, Tsipras is trying to satisfy creditor demands for additional savings from the pension system, keep his pledge not to cut primary pensions any further, and deal with a popular backlash against his proposals to raise mandatory social-security contributions for farmers, employers and white collar workers. At the same time, opposition parties have ruled out offering any support, while the latest opinion polls show that the conservative main opposition New Democracy party has regained the lead from the ruling Syriza party for the first time in almost two years.

The scale of protests against the government has sparked renewed doubts about Greece’s ability and willingness to deliver on its bailout commitments.

How does the real economy look?

Greece’s central bank predicts that the economy contracted by 0.2 percent last year. The European Commission’s estimates gross domestic product in 2015 was unchanged, and sees a 0.7 percent contraction for 2016. The impact of last year’s turmoil and capital controls has been much less severe than expected, though Bank of Greece governor Yannis Stournaras said Wednesday that economic output in 2015 would have been as much as 15 billion euros greater had it not been for the prolonged quarrel between Tsipras and euro-area member states over terms of the bailout.

Stournaras said that a delay on the completion of the bailout review would weigh on the country’s economic recovery prospects this year. Greek government notes are the worst performing of all sovereign securities tracked by Bloomberg’s World Bond Indexes this year and the Athens Stock Exchange has been the worst performing of all primary equity gauges tracked by Bloomberg. Banks have been hit particularly hard, losing more than half of their market value.

Why are creditors asking Greece to make pension cuts?

Greece has almost 2.7 million pensioners and the average gross pension for retirees is about 960 euros per month, Labor ministry data show. The sum total of pensioners and unemployed is higher than the 3.7 million currently working in Greece, according to the latest Labor Force Survey published by the Hellenic Statistical Authority.

Last year, the state spent 22.7 percent of its ordinary budget to plug the hole in pension funds, according to the country’s Parliamentary Budget Office. The non-partisan office said in a report published last month that public expenditure for pensions equals 14.9 percent of Greece’s gross domestic product, versus an average of 7.9 percent among member states in the Organisation for Economic Cooperation and Development.

What are the creditors’ biggest issues?

Pensions, fiscal projections, public administration and Greece’s privatization fund. The first two are closely linked, with Greece needing to show it will be able to meet its bailout budget targets based on expected revenues, spending needs and economic growth. Greece has proposed collecting more taxes to make sure its pension numbers balance, while the EU says that could hurt economic growth by punishing employers. Tsipras also needs to fend off allegations of corrupt appointment practices. An EU official told reporters this week that some Greek ministries have made disappointing hires that aren’t in line with the bailout commitments and have “decreased happiness” with the program.

How much money is on the line?

The exact size of Greece’s next aid disbursement will depend on when it’s released and what future obligations are due. Creditors want Greece to have enough cash to make near-term debt payments to the IMF, ECB and government contractors. But they don’t want to give Greece so much room that it stops taking bailout requirements seriously. Current expectations are in the 4 billion- to 6 billion-euro range, enough to get through the first half of the summer but not through a big payment due in August.


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