Pensions decision made quietly to avoid reactions in eurozone


A series of developments on the European level, and not just fiscal outperformance in Greece, influenced the Euro Working Group (EWG) decision last Thursday to give Athens the green light to suspend the reduction of 1.2 million pensions in a way that would not generate reactions in European capitals.

“We have to prepare for a battle and not open another 10 fronts,” a eurozone official told Kathimerini, stressing that the simmering Italian crisis played a key role in avoiding the opening of a second front with Athens.

Many observers note that the uncertainty in Berlin, with the weakening of Chancellor Angela Merkel’s position even before her resignation from the chair of the Christian Democrat Union (CDU), offered Athens some room for maneuver – which is unusual in the German capital when it comes to Greek economy issues. Furthermore, the fatigue in Brussels over Greece matters discourages any new confrontation with Athens. “No one is in the mood for a new Greek crisis,” one European official said, explaining the tolerance that Brussels and Berlin showed toward the Greek government’s demand to avoid the pension cuts.

The Greek Finance Ministry clearly expressed its intention not to implement the cuts to pensions issued before May 2016 back in September, saying that even without them the fiscal target for a primary surplus of 3.5 percent of gross domestic product would be feasible in 2019. It was clarified to the Greek side from the first discussion on the sidelines of the Vienna Eurogroup that if it cooperated with its eurozone peers, and didn’t act unilaterally, a deal would be possible.

As the weeks went by, and Rome prepared for a standoff with Brussels, it became obvious in a series of European capitals that the Greek matter could not resurface, but rather that the markets should get the message that only Italy could pose a problem, and that Greece – albeit out of the bailout program – remains disciplined.

This explains why the EWG decision was made in such a discreet way, as there is concern that any more emphasis would bring the issue back to public debate in member-states, especially in Germany, where adherence to agreements is a particularly sensitive matter. The objective is to avoid any reactions in the December 3 Eurogroup that is to give the eurozone’s nod for the suspension of the pension cuts.