Wait and see, lenders tell Greece on bid to rescind pension cuts

A bid by Greece to rescind pension cuts mandated for next year remains on hold after its international creditors withheld instant approval during their first post-bailout inspection of the country’s finances, which ended on Friday.

Greece emerged from the biggest economic rescue in history in late August after almost nine years of austerity. It still owes billions, and remains under monitoring by the European Union and International Monetary Fund to ensure it does not deviate from fiscal targets.

Government data released on Friday showed it easily beat its primary budget surplus target in the eight months to August.

Athens argues it has enough leeway to unwind cuts in pensions of up to 18 percent that are scheduled to kick in from January, while maintaining the healthy surplus its lenders say it needs in order to keep its finances on a sustainable trajectory. But one EU source said it was too early for the lenders to approve such a move.

“Fundamentally, nothing has changed, given that this first post-programme mission in Athens was to be in listening mode, not to negotiate or decide,” the source said. A second source said “a good deal of work” was still required.

In Brussels, the European Commission said Athens should deliver on its fiscal promises first. Asked at a news briefing if Greece was free to forego the planned pensions cuts, Commission spokesman Alexander Winterstein replied: “Pacta sunt servanda” – using a Latin legal term meaning “agreements must be kept”.

Athens has promised to achieve an annual primary surplus – which strips out debt servicing costs – of 3.5 percent of GDP up to 2022. With that in mind it legislated pension cuts and tax hikes to take effect in 2019 and 2020.

But Prime Minister Alexis Tsipras – trailing in the polls and keen to shore up his popularity before national elections next year – has said in recent days Greece considered those measures unnecessary since it has been beating its fiscal targets. Its preference would be to ditch the pension cuts, which Tsipras said would also be contingent on a review of its budget by the European Commission in mid-October.

The eight-month central government primary surplus was 3.14 billion euros ($3.67 billion), Finance Ministry data showed on Friday, well ahead of a target of 917 million euros. [Reuters]