Greek Lawmakers to Vote on Austerity Measures as Protests Continue
Greek government hopes tax and pension reforms will unlock bailout funds but creditors remain deadlocked
ATHENS—Greece’s parliament is due to vote on pension overhauls and tax increases on Sunday night amid strikes and street protests, in a move the government hopes will impress the country’s creditors and unlock bailout funds.
But Greece’s most influential creditors, Germany and the International Monetary Fund, remain deadlocked over the terms of Greece’s bailout plan, which the IMF thinks is badly flawed but Germany says can’t be changed.
The Eurogroup, as the committee of eurozone finance ministers is known, will meet in Brussels Monday to discuss Greece’s fiscal strategy and the sustainability of its debts. A resolution of the deep differences isn’t expected.
The legislation on which Greek lawmakers will vote covers the bulk of a package of austerity measures worth around €5.4 billion ($6.16 billion), or 3% of gross domestic product, that creditors have asked for.
The legislation includes a simplification of Greece’s fragmented and costly pension system, which lenders and Greece’s ruling left-wing Syriza party agree is long overdue. But cuts to entitlements and increases in workers’ contributions have provoked opposition from Greek labor unions and other professional groups.
The measures are expected to pass, although the government has little scope for any rebellion by its lawmakers. The Syriza-led coalition has a majority of only three seats in the 300-member parliament. The problem for Prime Minister Alexis Tsipras is that key creditors won’t be satisfied with Sunday’s measures alone.
In a letter to eurozone finance ministers sent on Thursday, IMF head Christine Lagarde said Europe is trying to make Greece reach an unrealistically high budget surplus. If Europe won’t reduce the target, she said, then Greece will need to introduce austerity measures worth a further 2% of GDP.
Greece’s government, under pressure at home and fearful of losing its hold on power, is balking at extra austerity measures beyond the €5.4 billion package.
Greek Finance Minister Euclid Tsakalatos sent a letter to other eurozone finance ministers on Friday “appealing to both your economic and political experience” to argue that his government can’t be expected to pass even-tougher cuts totaling €9 billion.
“There is no way such a package could pass the present government, or, for that matter, any democratic government that I could envisage,” Mr. Tsakalotos wrote in the letter, seen by The Wall Street Journal.
Some participants expect the impasse to continue until Greece is on the brink of bankruptcy, which will happen by July at the latest, without a deal that releases billions of euros of fresh bailout loans.
The return of the Greek debt crisis this spring is exposing the limits of last July’s bailout agreement, which avoided a Greek exit from the euro after a hard-fought confrontation between Athens and its lenders for much of 2015.
The agreement left open the question of whether and how to restructure Greece’s massive debt, which the IMF says is unsustainable. It requires Greece to reach a primary budget surplus (excluding interest) of 3.5% of GDP by 2018 and maintain it for decades. Ms. Lagarde’s letter described that as “higher than what we consider economically and socially sustainable.”
But German officials rule out cutting Greece’s primary-surplus target to only 1.5% of GDP as the IMF recommends. Lowering the budget target would require major debt forgiveness, so that Greece’s debt doesn’t spiral even higher.
Germany is currently open to only minimal changes to Greece’s debt burden. Although Germany’s Social Democrats, the junior partner in Chancellor Angela Merkel’s coalition, said on Saturday that debt relief is inevitable, the chancellor’s conservatives remain opposed.
Revisions to the bailout agreement would need approval from Germany’s parliament, the Bundestag. Ms. Merkel and her finance minister, Wolfgang Schäuble, want to avoid a controversial debate in the Bundestag about major new concessions for Greece, which could lead to a rebellion among conservative lawmakers and further aid the rise of the upstart populist party AfD, which opposes eurozone bailouts.