Greece Submits Reforms for Bailout Extension, IMF Critical

Greece’s latest promises underwhelm the IMF. Europeans agree to extend its bailout anyway.

European finance ministers agreed to give Greece a four-month extension of its bailout on Tuesday, even as the International Monetary Fund criticized the Syriza-led government in Athens lacking specificity in its plans.

The eurozone countries had agreed in principle to extend Greece’s loans before the weekend but conditioned final approval on a letter listening the policies Greece plans to enact during the remainder of the bailout period.

Greece needed more money to stave off the prospect of a sovereign default and possible exit from the euro when its aid package expires by the end of the month.

In the letter, submitted in the early hours on Tuesday, Greece promises not to enact any more unilateral policy changes and ensure that measures designed to alleviate what Prime Minister Alexis Tsipras has called the country’s “humanitarian crisis” will be budget neutral.

A European Commission source said the list was “sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.”

But the International Monetary Fund, which jointly administers Greece’s bailout with European countries, was underwhelmed by the promises. The fund’s chief, Christine Lagarde, wrote to the Netherlands’ Jeroen Dijsselbloem, who chairs the meetings of eurozone finance ministers, that the latest Greek pledges did not convey “clear assurances that the government intends to undertake the reforms envisaged.”

We note in particular that there are neither clear commitments to design and implement the envisaged comprehensive pension and VAT policy reforms, not unequivocal undertakings to continue already-agreed policies for opening up closed sectors, for administrative reforms, for privatization and for labor market reforms.

The Financial Times reports that Greece has made many of the same promises before — which put them at odds with the new government’s stated opposition to austerity and liberal economic reform.

Tsipras’ far-left Syriza party won the election last month on promises to reverse the reforms Greece has undertaken since 2010 in order to qualify for a total of €240 billion in financial support.

Immediately after taking office, Tsipras canceled the privatization of Greece’s largest seaport and its public power utility. His new energy minister, Panagiotis Lafazanis, said privatizations were “over.”

But in the letter, Greece commits to not reversing privatizations and “respecting the legal process” in the case of tenders already launched.

On labor reform, the government also seems to walk back its earlier promises to raise the minimum wage and restore collective bargaining. In the letter, it promises a “smart” approach to collective bargaining “that balances the needs for flexibility with fairness.”

This includes the ambition to streamline and over time raise minimum wages in a manner that safeguards competiveness and employment prospects.

The letter also vows to consult European partners and the IMF before changing the minimum wage which was cut from €876 to €683 per month in 2012 — still higher than it is in Portugal and Eastern European countries.

The letter made no mention of Syriza’s campaign promise to restore pension bonuses. Rather, it reiterates Greece’s commitment to streamlining the pension regime and eliminating “loopholes and incentives that give rise to an excessive rate of early retirements.”

In the years leading up to the crisis, Greek public spending on pensions rose from 11.8 to 13 percent of economic output. Last year, the Finance Ministry revealed that three out of four Greek workers benefit from early retirement rules that allow them to stop working before they reach the age of 61.