• Government red line puts it on collision course with creditors
  • Katrougalos sees no hope of consensus with main opposition

Greece’s “absolute red line” in negotiations with its creditors? No further cuts in primary pensions.

Labor and Social Security Minister George Katrougalos says the government’s proposal of raising 600 million euros ($651 million) through increased mandatory contributions is a more palatable option, pitting it against creditors, who say it may hurt growth. The country’s newly-elected leader of the main opposition New Democracy party leader, Kyriakos Mitsotakis has also said he won’t back such an increase, ensuring the government’s slim parliamentary majority will be tested.

George Katrougalos
George Katrougalos
Photographer: Michael Debets/Pacific Press/LightRocket via Getty Images

“Of course, the rise in contributions is not a good thing, but we think that it’s the lesser evil in comparison to a twelfth consecutive reduction in pensions,” Katrougalos said in an interview in Athens on Tuesday. “Pensions are basically the only social service provided by the state. For instance, we do not have unemployment allowance for more than one year. So, many of the unemployed now survive because they have some grandparent.”

The bind Greece finds itself in shows the limited room for maneuver the government has as pension reform becomes the most contentious issue in the country’s first review under its new bailout, set to begin in the coming days. Representatives of the country’s creditors are due in Athens on Jan. 18, according to Katrougalos. Completing the review is a condition for Greek debt relief talks to begin.

Convincing the IMF

Greece must satisfy the International Monetary Fund that its pension reforms are far-reaching enough to put the country’s finances on a sustainable footing, as the fund decides whether it will remain involved in the Greek bailout after its program expired in March.

While the government could be happy to see the back of the fund, Finnish Finance Minister Alexander Stubb reiterated that the fund must remain on board after meeting with Greek Finance Minister Euclid Tsakalotos in Helsinki on Monday.

“It would be much easier for us if we were to discuss only with the Europeans, not the IMF, but it’s a decision up to the IMF, not up to us,” Katrougalos said.

Parliamentary Vote

Katrougalos said the government’s budget will already reduce pension spending by 1.1 billion euros this year, before taking the increase in mandatory contributions, which will take the total savings to 1 percent of gross domestic product.

The government will before the end of the month submit the reform to parliament, where it controls 153 out of 300 seats, to be voted on in February. Katrougalos said the government expects to keep that majority after the vote, and that the coalition could also pick up some individual lawmakers from some of the smaller parties.

The government can’t expect any support from Mitsotakis’s party, whose election “represents the alliance between the neo-liberal faction of New Democracy and the extreme-right hardliners of the party,” according to Katrougalos.

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