## Greece: Toward a Workable Program

_IMF Blog, February 11, 2016_

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**Canonical URL:** [Greece: Toward a Workable Program](https://www.imf.org/en/blogs/articles/2016/02/11/greece-toward-a-workable-program)

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## Bibliographic details
- Authors: Poul M Thomsen
- Published: February 11, 2016

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### Overview
- Author: Poul M. Thomsen.
- Date: February 11, 2016.
- Context: After stabilizing the economy following last summer’s crisis, the government of Alexis Tsipras is discussing with European partners and the IMF a comprehensive multi-year program to secure a lasting recovery and make debt sustainable.
- Central IMF objective: Help Greece return to a path of sustainable growth that benefits the Greek people through a program of reforms plus debt relief that "adds up."

### Debt relief and reform trade-offs
- Key principle: There is an inverse trade-off between the ambition of reforms and the strength of debt relief — a program with less ambitious reforms requires more debt relief, and vice versa.
- Mutual dependence: "No amount of pension reforms will make Greece’s debt sustainable without debt relief, and no amount of debt relief will make Greece’s pension system sustainable without pension reforms."
- Political reality: Greece and European partners will face politically difficult decisions; compromises must reflect political constraints within the euro zone.

### Why focus on pension reforms
- Persistence of generosity: Despite reforms in 2010 and 2012, Greece’s pension system "remains unaffordably generous."
- Comparative indicators:
  - Standard pensions in nominal Euro terms are "broadly similar in Greece and Germany," despite Germany being "twice as rich as Greece" by average wage.
  - Greeks retire much earlier than Germans.
  - Germany is much better at collecting social security contributions.
- Fiscal consequence: The Greek budget needs to transfer "some 10 percent of GDP" to cover the pension system shortfall, compared to a European average of "some 2½ percent."
- Sustainability conclusion: The present pension arrangement is "unsustainable."

### Fiscal targets, required measures, and credibility
- Medium-term target: Greece’s ambitious medium-term target for the primary surplus is "3½ percent of GDP."
- Required adjustment: To reach that target, Greece will need measures "in the order of some 4-5 percent of GDP."
- Limits to alternatives:
  - Scope to cut other spending or increase tax rates exists but is "very limited."
  - Most other spending has "already been cut to the bone" to protect pensions and social payments.
  - Failure to broaden the tax base and improve compliance precludes assuming large future tax collection gains.
- Growth assumptions: It is "not credible" to assume Greece can grow out of its debt problem rapidly by transitioning from the lowest to the highest productivity growth within the euro zone.
- Credibility emphasis: The IMF seeks a "credible plan" to reach the medium-term surplus target; over-optimistic assumptions risk reviving Grexit fears and stifling investment.

### Social impacts and safety net considerations
- Social hardship: Pension reforms will be "socially challenging" given exceptional hardship over "the past six years."
- Reversals: Social pressures have already forced reversals of course under both the previous and the current government, leaving Greece "much further away from its medium-term goals than it was in mid-2014."
- Social role of pensions: Pensions have a broader social function in Greece, but using pensions for social protection "is not a durable solution."
- Recommendation: The IMF argues for "a modern social safety net that is sustainable over the medium term."

### IMF stance and conditionality clarity
- Misperception addressed: The IMF did not make participation conditional on "socially draconian reforms" of pensions; rather, a program must "add up" quantitatively.
- Flexibility: The IMF is "willing to work with the combination of reforms and debt relief on which Greece and its European partners can agree," provided it adds up.
- Near-term support: The IMF does not want draconian fiscal adjustment in an already severely depressed economy and has argued for a fiscal path "more supportive of recovery in the near term and more realistic in the medium term."
- Overarching message: Difficult choices on reforms and debt relief are necessary to ensure that Greece’s efforts over the last six years are not wasted.

*Poul M. Thomsen, February 11, 2016.*

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## Content in this bundle

- **Ελλάδα: Προς ένα Εφαρμόσιμο Πρόγραμμα - Από τον Πάουλ Μ. Τόμσεν**
  - [Ελλάδα: Προς ένα Εφαρμόσιμο Πρόγραμμα - Από τον Πάουλ Μ. Τόμσεν (Markdown version)](/external/lang/greek/np/blog/2016/021116g.pdf.md){rel="alternate" type="text/markdown"}
  - [Ελλάδα: Προς ένα Εφαρμόσιμο Πρόγραμμα - Από τον Πάουλ Μ. Τόμσεν (PDF)](/external/lang/greek/np/blog/2016/021116g.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://blog-montada.imf.org/?p=4012)

_Source: https://www.imf.org/en/blogs/articles/2016/02/11/greece-toward-a-workable-program_