Greece deal: Seriously, what's holding it up?

Holly Ellyatt   | @HollyEllyatt

5 Hours Ago

CNBC

Since coming to power at the end of January, you'd be forgiven for thinking that Greece's leftwing government had spent all of its time in talks with its international lenders.

Negotiations over the country's bailout program, reform measures and financial needs have seemingly dragged on and Greece has rarely been out of the headlines since Prime Minister Alexis Tsipras and fiery Finance Minister Yanis Varoufakis took the helm in January's election and started trying to steer Greece away from economic disaster.

Greece's euro zone counterparts have already agreed to give the country a four-month extension to its bailout program in order to allow it to make far-reaching reforms.

But the reform process has been slow with disagreements between Athens and the organizations making sure it sticks to the rules of its bailout – the European Union, European Central Bank, and International Monetary Fund -- over how far it needs to go.

CNBC explains the main sticking points between Greece and its lenders:

Pension reform

Disagreements over proposed reforms to Greece's pensions system and changes to its labor market have become known as "red lines" in negotiations with lenders, lines that Greece says it does not want to cross but might have to if it wants more financial aid.

Greece proposed in February reforms to "unify and streamline" its pension system, while also eliminating "loopholes and incentives that give rise to an excessive rate of early retirements throughout the economy and, more specifically, in the banking and public sectors," according to a letter from Varoufakis to lenders on Greece's reform proposals.

Lenders want Greece to make more cuts to its pension system which Greece is reluctant to do, given that it's population is already suffering under tough living conditions.

A Greek government official close to the negotiations told CNBC Thursday that although pension reform – among other issues -- were still "sticking points."

"There are sticking points on pension and labor market reforms, continuing cutbacks, unrealistic primary budget surplus targets, over-estimation of financing gaps and deficits that mean more austerity and cuts are in order, but the position of the Greek government is that without growth, we cannot do things we need to do like debt servicing," the official, who preferred not to be named due to the sensitive nature of discussions, told CNBC.

Labor market reform

For Greece, lenders' requests that it also overhauls its labor laws – such as introducing more flexible employment contracts to make it easier to hire and fire workers -- are anathema, while for lenders they are essential if the country is to become competitive again.

One sticking point for the Greek government, for example, is its desire to restore workers' rights and collective bargaining that was abolished under Greece's five-year bailout program.

In Varoufakis' letter to lenders on reforms proposals in February, he said Greece committed to "phasing in a new 'smart' approach to collective wage 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 competitiveness and employment prospects."

The tension between what the Greek public expect of its government in terms of employment provision – and what lenders oppose, such as raising the minimum wage – remains acute as a quarter of all adult Greeks are unemployed.

Illustrating just how far the negotiations have to go, on Wednesday, while Greece's negotiators were busy in Brussels discussing reforms, the Greek parliament approved a law that could pave the way for thousands of public sector workers who were sacked by the previous government to be rehired.

"Breakthrough' near?

Despite arguments, there are points of agreement between Greece and its lenders, mainly over modernising tax collection, tackling tax evasion, fraud and corruption and a U-turn by Athens on some disputed privatisations– such as the sell-off of the Port of Piraeus.

But on Wednesday, the head of the Eurogroup of euro zone finance ministers, Jeroen Djisselbloem, poured cold water on hopes that a deal on reforms could be reached when the group meets on May 11.

But there is hope a deal can be arrived at soon after a statement was released by the European Commission detailing a conversation between Greek Prime Minister Alexis Tsipas and the Commission's President Jean-Claude Juncker on Wednesday.

"President Juncker and Prime Minister Tsipras spoke on the phone today… They notably discussed the importance of reforms to modernise the pension system so that it is fair, fiscally sustainable and effective in averting old-age poverty. They also discussed the need for wage developments and labour market institutions to be supportive of job creation, competitiveness and social cohesion. In this context, they concurred on the role of a modern and effective collective bargaining system, which should be developed through broad consultation and meet the highest European standards."

The Greek government official CNBC spoke to said that the statement showed there had "some kind of breakthrough" and believed a deal could be arrived at in the "next few weeks."

"There can be a deal on reforms -- without it necessarily needing to include harsh cut backs on pensions or mass lay-offs of workers which are recession-creating measures," the source, said.

"There is wide room for convergence on things like collective bargaining and restrictions on early retirement too," he said.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld

Holly Ellyatt

Assistant Producer, CNBC.com