Daily Management Review

Christmas bonus for low-income pensioners endangers Tsipras' credibility


Greece’s lenders from Europe have suspended implementation of short-term measures to write off the country's debt. They are indignant at decision of the Greek authorities to grant 1.6 million pensioners living in the country with a Christmas bonus. European partners have considered these actions unilateral and not correlating with austerity measures to reduce Greece's public debt, which currently stands at € 86 billion ($ 89.75 billion). As a result, Athens might lose the IMF’s assistance.

"After Greek government's recent proposal to allocate additional funds for pensions and VAT, our governing bodies suspended implementation of its decisions", - said speaker of the European Stability Mechanism (European bailout fund).

This momentarily affected the Greek bonds. On Thursday, the ten-year bonds rose by 5 basis points, while on Wednesday the growth was 30 points, reports CNBC.

These actions are going to have consequences in the medium term.

"If Tsipras continues in the same vein, it will turn creditors from the Eurozone against him, and will jeopardize implementation of the promised measures to write off debt. On the other hand, if he succumbs to influence of the creditors, it will make him look unprofessional at best, and at worst will undermine his credibility within the country ", - commented Wolfango Piccoli, President of analyst firm Teneo Intelligence.

Popularity of the Greek government in the country is falling rapidly due to controversial reforms taken within the austerity program.

According to European Commission data, in 2016 primary budget surplus will exceed the country’s targets of 0.5% (despite the fact that average deficit of 3% is considered acceptable).

However, these economic shifts are not reflected on ordinary Greeks.

According to the European Commission Speaker, now the European authorities in Athens are engaged in revision of the second set of anti-crisis measures, after which the next payment should be made. Technical teams are using this opportunity to evaluate impact of new measures on the Greek government.

"The new conflict between the Greek authorities and their counterparts from the euro zone means that results of the second review will be announced later," - said Piccoli.

The International Monetary Fund is awaiting results of the second review to assess possibility of participating in the third program of Greek bailout. The Foundation states that its financial and technical participation will be possible only if Greece is entitled to substantial debt relief, and its targets the surplus are reduced.

Further delay in revision of the results will mean that the IMF will not be able to participate in the program.

According to an employee, who asked to preserve his anonymity due to sensitive nature of the issue, probability that the IMF joins the bailout program is getting lower everyday.

"At the moment we are at an impasse," - he said. The source also explained that the current stalemate with short-term debt relief "is not a big deal" for the IMF, as the fund focuses on solely long-term measures.

The deteriorating economic situation is putting pressure on the Greek government.

"The situation also increases chances for early elections in Greece. Having all his cards on the table and faced with difficulties in revising the anti-crisis program, Tsipras might want to cut their losses through the earlier vote as yet ruling party "Syriza" has enough supporters", - said Piccoli.

New elections in Greece will mean not only instability to the south of the economy, but also jeopardize the EU as a whole. Some member states have their elections just at a time when anti-European mood there is jeopardizing existing political system of the unit.

source: ft.com