Gov’t hopes 2015 primary surplus will stave off need for more pension cuts

23 January 2016
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Greek government officials will be hoping that a small primary budget surplus for 2015 will help them stave off the deeper pension cuts that the country’s lenders are demanding.

A new week of negotiations begins with no certainty over when the heads of the quadriga’s mission are due to arrive in Athens but with plenty of discussions to take place between Greece and its lenders, as well as between the eurozone and the International Monetary Fund.

It was made clear to Prime Minister Alexis Tsipras at the World Economic Forum in Davos, Switzerland, last week that the lenders – the IMF in particular – feel that the government’s pension reform proposal is not comprehensive enough. The IMF does not think that the proposal made by Labor Minister Giorgos Katrougalos could produce savings of 1 percent of gross domestic product, or roughly 1.8 billion euros, per year. The suggestion is that the coalition may have to make immediate cuts to existing pensions, which it wanted to avoid.

Speaking on Mega TV on Saturday, government spokeswoman Olga Gerovasili said that those in Greece protesting the pension reforms put forward by the coalition should be aware that the alternative is deeper cuts.

“The other issue is if we do not do this, will we have a pension system in 2018 or not?” she said. “These are two tough dilemmas that do not have pleasant answers.”

The government is hoping that a small 2015 surplus, achieved after revenues beat their target by 1.9 billion euros during the course of the year, will help it in its argument that there is no need to make cuts straight away. The lenders are waiting for more data to confirm the size of the surplus.

The IMF does not think that Greece can hit its target of a 3.5 percent of GDP surplus in 2018 as things stand, which means that more cuts will be needed. It sees this year’s fiscal gap at 1 percent of GDP. The European lenders are a little more optimistic and believe the shortfall will be half of that, in other words less than 1 billion euros.

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