Three Greek pension scenarios as Tsakalotos heads for IMF talks

Three Greek pension scenarios as Tsakalotos heads for IMF talks
Greek Finance Minister, Euclid Tsakalotos is expected in Singapore on Tuesday and Hong Kong on Wednesday for a series of meetings with investment fund managers. On Thursday, Tsakalotos will visit Bali to attend the IMF and World Bank Annual meeting which is seen as crucial for Greece.

The Finance Minister’s busy schedule comes amid an effort to build investors’ trust in the economy and regain access to international debt markets. Moreover, Athens is trying to secure the consensus of its international creditors to avoid implementing pension cuts legislated to take effect as of January 2019.

At the summit in Indonesia, the Greek minister is expected to meet with IMF Managing Director, Christine Lagarde. The Washington-based Fund has made clear that Athens must honor its commitments, including an agreement to further slash pensions, a measure the IMF sees as structural.

IMF forecasts for the Greek economy will also be announced during the summit. These are seen to be important as they could determine creditors’ stance towards the Greek coalition government’s argument that pension cuts are an unnecessary fiscal measure.

In the draft budget for 2019 submitted to parliament last week, the government included two possible scenarios regarding the legislated pension cuts.

In the main scenario, pensions will be cut and a set of agreed offsetting measures worth 2 billion euros will apply. In this case the primary surplus will come in at 4.14% of GDP. In an alternative scenario, pension cuts will not implemented, meaning the primary surplus in 2019 will stand at 3.56% – still 122 million euros above the agreed target. 

Analysts point to three possible scenarios in relation to talks on pension cuts.

If the government succeeds in avoiding the cuts, Prime Minister, Alexis Tsipras, will try to portray this to the electorate as a major success of his administration and proof that the economy is well on the mend.

In the event that the international creditor institutions reject the Greek side’s request, the government could either cut pensions – suffering the consequences in the next election – or unilaterally decide to cancel the cuts. This scenario could also involve a snap election, with the government focusing on rallying support of pensioners and the leftist core-vote.

A third scenario involves the government agreeing with the institutions to suspend the measure by a few months. This would lead to SYRIZA fighting the next election without carrying the obvious political cost of imposing cuts…. / IBNA