While Greece was dangerously teetering on the brink of exiting the Euro just last summer, it seems the question is no longer open for debate. Instead, the spotlight today is on Athens’ slow implementation of the laundry list of reforms demanded by creditors in exchange for the painful bailout agreement struck back in July. While Greek officials are saying 100 such reforms have already been implemented, the latest “make or break” moment in the talks revolves around whether the Greek parliament has the ambition to redefine the national pension system and speed up the privatization of key industries.
For once, all the concerned actors seem to be on the same page: pension reform is an essential step on the road to financial recovery. However, the major point of contention is how this should be carried out. While creditors have been pushing for spending cuts from the onset of negotiations, Athens opted for a tax raise instead, and conveniently used the move to brandish its leftist credentials.
The reformed Greek pension plan, as foreseen, entails a radical unification of the whole system. The goal is to implement a single institution to deal with pensions and one algorithm to calculate them. To date, the Greek pension system is run by 21 organizations and uses no less than 900 different methods to determine a person’s income. A new mode of operation would ensure a better control of pensions and should bridge the abyss formed between contribution and cost. For the Greek public, such reforms mean that 2/3 of pensioners are projected to receive less than 1,000 euros per month, with a basic income set at 384 euros, which can then be supplemented according to particular contributions and benefits. Syriza, Greece’s left-wing coalition party, still wants to guarantee its promise of social solidarity, but it is virtually impossible to do so in such conditions of austerity — all while considering the annual 791 million euros that reforms are predicted to save.
On the other hand, privatizing the most profitable Greek markets would provide Greece with the influx of cash it desperately needs to pay its short-term bills and stave off further cuts. Greece has so far been consistently hesitant in putting its industries up for sale, presumably because such a move would mean going against the tide of its socialist majority. The government’s wiggle room is severely limited, in great part because selling off state assets is a key prescription of the bailout agreement. So far, because of political opposition, hand wringing and repeated throttling means that only $3 billion has been raised through privatizations.
The first big deal was reached in late December, which saw the concession for 40 years of 14 regional airports to a German company, much to the ire of nationalist MPs. The deal raked in $1.3 billion and the government promised to raise north of $2.6 billion in 2016 through the selling of state assets.
Similarly, Greece’s shipping industry, another vital sector in the privatization process, is the largest in the world, generating 17 billion euros in revenue each year (counting related business). In spite of the government’s avowed gumption, roadblocks persist. On January 12th, Cosco Pacific, a Chinese shipping company, was confirmed to be the sole contender for the sale of the Port of Piraeus — a transaction worth hundreds of millions for the cash strapped government in Athens. The only downside is that Syriza has already postponed the auction three times, moves that resulted in two bidders dropping out of the race. In the words of one investor, “After careful review, we concluded that [Piraeus] is not an attractive business for us,” a statement that expresses the deep distrust some have of the Syriza-led government. The reluctance by some foreign investors to buy in may also be the result of Syriza’s announcement that it plans to nationalize its shipyards, sending an unclear signal about its commitments to privatization of a key sector. Bids for more ports are expected later this year, and it remains to be seen whether the razor thin parliamentary majority keeping Syriza in power will have the stomach to pursue the deals to their ultimate signing.
The challenges facing Greece for 2016 remain plentiful. Despite an extremely small majority to back him, Alexis Tsipras got this year’s budget approved both by parliament and international creditors in December. Every attempt at winning approval and scheduling new measures is evidently a challenge when faced with a fragmented government and an unstable coalition. Pressure to dart headlong into a mass pension reform is essentially tightrope-walking at this point. It remains uncertain whether the Greek political scene could withstand such controversy and the risk of a split is becoming dangerously high. Strife across parliament could lead to members defecting and votes inevitably shifting towards other parties. Syriza already needs to look out for a rise in competition with New Democracy, the party that came a close second in the last elections and whose newly elected leader, Kyriakos Mitsotakis, is getting considerable attention as a predicted reformist.
If the latest tiff with creditors over pension reform is any indication, it seems that both sides have failed to learn the lessons that helped stave off the near collapse of the Eurozone last summer. Instead of wasting political capital pushing Tsipras’ fragile government to implement further cuts, creditors would be wise to rethink their approach and channel their energy towards accelerating the privatization process. When EU officials meet in Athens on January 18th to discuss reforms, it is privatizations and not pension reform that should top the agenda.
