Editorial Board

Don't Let Greek Pensions Threaten the Euro

First anniversary.

Photographer: ANGELOS TZORTZINIS/AFP/Getty Images

Greece is a small country, but for much of 2015 its problems were big enough to threaten the survival of the euro system. A year after Alexis Tsipras took charge as prime minister, the government seems committed to meeting the obligations demanded by its creditors in return for further aid. Neither side should allow the remaining sticking point -- pension reform -- to jeopardize the euro again.

The Greek economy is still in intensive care, and the unemployment rate is stubbornly high, but the situation is improving. The economy is expected to shrink by only 0.7 percent this year, and 2017 could see growth of 1.9 percent. The nation’s credit rating has been upgraded.

But the domestic political situation remains fragile. After defections, the parliamentary majority of Tsipras’s Syriza Party has all but vanished. Avoiding a rerun of the earlier drama requires a double success -- not just steady commitment on Greece’s side but also greater flexibility from its European partners. And the real test will come when Tsipras tries to get parliament to approve much-needed reforms of the pension system.

Greece’s Fiscal Odyssey

If this isn’t cautiously handled, a new political crisis is not just possible but probable. Keeping pressure on Greece to persist with needed reforms is vital, and pension reform and privatizations are undoubtedly necessary. But the EU can improve the chances of success by being a little more willing to bend than before.

On privatization, for instance, the sale of airports, ports and other assets agreed so far will deliver proceeds of about 1.5 billion euros this year; a reluctance to indulge in what the government still calls “fire sales” may mean the official budget target is missed. For sure, creditors should demand progress, and good-faith efforts to keep the earlier promises. But the direction and durability of reform matter more than the pace. Insisting on change that’s faster than the government can deliver, or on sales that grossly undervalue the assets in question, serves no purpose.

On pension reform, Greece and its creditors disagree on where to find savings. Should it be mainly from higher contributions (taxes), as the government prefers, or mainly from lower payments to pensioners, as the creditors would like?

It is true that Greece’s record on tax collection does not inspire confidence. That said, as long as the system is pushed toward fiscal soundness, the creditors ought to defer. It should be for Greece to say how the cost will be divided between its taxpayers and pensioners.

Finally, the creditors have agreed to talk about new debt relief -- eventually. Everybody knows that Greece’s finances can’t be repaired without debt relief, so this discussion is overdue. The details of forgiveness or other concessions needn’t be decided now, but the talks ought to start. That would give Greek voters more reason to endure the next stage of belt-tightening.

The European Union, at great and unreasonable cost, forced Tsipras to surrender last year. If it doesn’t want a repeat of that calamitous episode, it should be gracious in victory.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.