On reform, Europe asks Greece to go where many fear to tread

Greece's new bail-out deal imposes a stiff dose of budget rigour and market deregulation which critics say few leaders of Western Europe's biggest nations have dared serve their own voters.

“Francois Hollande is very good at telling others how to do their reforms,” opposition French conservative Xavier Bertrand said in a dig at France's Socialist leader, a key broker in the Greek accord clinched on July 13 after all-night Brussels talks.

“So what's he waiting for in France?” said Bertrand, who was labor minister in the 2007-2012 government of former President Nicolas Sarkozy, which also struggled to make good on campaign pledges to revamp the eurozone's second largest economy.

While eurozone leaders deflect cries of double standards by insisting the tough measures are justified to rescue Greece from collapse, such jibes underline how uneven reform has been in the 19-member currency area since its launch in 1999.

While she has balanced Germany's budget for the first time since 1969, Angela Merkel faces regular criticism that she has done little in a decade in power to modernise the bloc's biggest economy since taking over from Gerhard Schroeder, voted out in 2005 after introducing a raft of painful labour reforms.

The demands made on Athens to win a new bail-out worth up to 86 billion euros would, if implemented, transform the Greek economy from the bad boy of Europe into a reform poster-child.

They come as Greece pursues spending cuts of such rigour that it eked out a small primary budget surplus before debt service for the second successive year in 2014, in stark contrast to repeat deficit-sinning by France.

Desperate times call for desperate measures, Greek creditors respond, arguing that this is what happens when your national debt hits 177 percent of gross domestic product and a crumbling economy leaves one in four of the workforce with no job.

But as Greek Prime Minister Alexis Tsipras braced to push a further batch of measures through parliament on Wednesday, it is worth recalling that much of what Athens has been told to achieve has proven so socially and politically explosive that others in Europe have struggled to do the same.

Pension reform – the elusive goal

As protesters threw stones and petrol bombs outside, Greek lawmakers last week passed a first batch of austerity moves stipulated in the Brussels accord, including “upfront measures to improve long-term sustainability” of pensions.

While few dispute the need to revamp a pension system which drains nearly 10 percent of GDP a year from the state budget – four times the eurozone average – balancing retirement accounts has proven elusive across a continent with ageing populations.

Sarkozy's move in 2010 to raise the statutory retirement age by two years to 62 sparked France's biggest street protests in years. Hollande has made more tweaks, but the annual deficit of the state pension fund will still hit 9.2 billion euros by 2020.

Greece's bail-out imposes a statutory pension age of 67 by 2022 – seven years ahead of the deadline Germany set itself to reach the same target in a law agreed back in 2007.

Further divergences emerge in the market reforms Greece must undertake, including liberalisation of Sunday trading and deregulation of its dairy, bakery and pharmacy sectors.

These are based on a best practice “toolkit” designed by the Organisation for Economic Cooperation and Development, an inter-governmental think tank. In an executive summary, the OECD extols the growth potential of such measures, pointing to their contribution to a 1990s revamp of the Australian economy.

Their application in the eurozone is somewhat patchier.

While one “toolkit” recommendation to Greece is to liberalise pharmacy distribution channels, French pharmacists retain a monopoly on selling common non-prescription drugs. They staged a one-day strike earlier this year to defend that right.

Sunday trade is still banned in Germany, apart from very specific exemptions, which is one reason why railway stations often resemble shopping arcades.

In France, mayors may now allow stores to open on up to 12 Sundays a year. But the government had to use a constitutional device to pass the controversial law through parliament without a vote due to opposition among its own Socialist lawmakers.

“They want to asphyxiate the small stores so that the big international ones can enter,” Vassilis Korkidis, president of the Athens Retailers Association, said of what he suspected were the ulterior motives for imposing such measures on Greece.

Greece ‘not alone’ on reform path

EU officials deny accusations of double standards, arguing that Greece fell so far behind the curve of gradual reform elsewhere in the bloc that it now must race to catch up.

“Businesses in Greece continue to face more regulations and restrictions than in many other EU and OECD countries,” the European Commission said in an emailed statement. Citing efforts in Spain, Italy and Belgium, it noted that Greece was “by far not the only country” overhauling its pension regime.

Countries in the former Communist east which have already gone the extra mile with tough reforms needed to secure their euro membership make that argument more forcefully.

Poland says its state pension system is sustainable in the long run, even as its population ages. But the price will be a low level of provision, with state pensions potentially falling to as low as 20 percent of final salary by 2060.

Eastern newcomers to the eurozone say their pensions are less than half the average Greek pay-out of 833 euros a month.

On the regulatory front, they say their economies are already more open in some areas than those in western Europe.

In Slovakia, investors have used liberal ownership laws like those being urged on Greece to build pharmacy chains with long opening hours, while some over-the-counter products can be sold by non-pharmacies. Sunday trading is legal in Slovakia, as it is in Bulgaria and Romania among others.

“There is nothing in the agreement that other countries haven't carried out already,” Estonian Prime Minister Taavi Roivas, whose country joined the eurozone in 2011, told German daily Handelsblatt in an interview published on Wednesday.

EU policymakers have complained for years about member states who pay lip service to reform at Brussels summits, then drag their heels back home faced with powerful vested interests.

A joint report by the chiefs of the main EU institutions and the European Central Bank said last month the bloc's pensions systems still need a major overhaul and proposed more binding reform targets for member states on everything from labour markets to business regulation.

Hollande is leading calls for the eurozone to have its own government and parliament to improve policy-making – a move Berlin backs in principle. But there is plenty of scope for divergence on the substance.

Backers of “more Europe” argue that tighter eurozone rules might have prevented the Greek crisis. The question is whether anything will be in place in time to avert the next crisis.

[Reuters]