Greece Renews Challenge to Creditors’ Austerity Policies

Labor Minister says stimulating growth, not belt-tightening, is best way to bolster country’s finances

The Wall Street Journal

By NEKTARIA STAMOULI and  MARCUS WALKER

Jan. 12, 2016 4:41 a.m. ET

ATHENS—Greece’s left-led government renewed its challenge to its creditors’ austerity policies on Tuesday, vowing to resist further pension cuts while calling on Europe to let Greece meet budget targets mainly via economic growth, not belt-tightening.

“The best way to fill this gap [in Greece’s budget] isn't by reducing, but by increasing the economy,” Labor Minister George Katrougalos said in an interview with The Wall Street Journal.

“We must not burden the economy further with recession-bringing measures,” Mr. Katrougalos said, showing that Greece’s ruling left-wing Syriza party hasn't dropped its challenge to German-sponsored fiscal retrenchment despite signing an austerity-heavy bailout deal last summer.

Mr. Katrougalos, in charge of the thorny issue of reforming Greece’s overstretched pension system, said Greece is flexible on the details of its proposed pension blueprint, but ruled out fresh cuts to current pension levels.

Greek pensions, because of their high cost and the pension system’s financial shortfall, are the most important policy area that the country’s creditors want to see reformed in return for further bailout loans this year.

“For us it is a red line not to reduce pensions for a 12th consecutive time,” he said. Average Greek pensions have already been cut by around 40% in repeated efforts to cut Greece’s budget deficit since the country’s international bailout began in 2010, he said.

Greece’s government, led by the left-wing Syriza party, faces tough talks in coming weeks with the country’s creditors—the rest of the eurozone and the International Monetary Fund—about how to repair its overstretched pension system. The government’s stance on pension reform is expected to come under strong pressure from lenders, especially the IMF and Germany, which believe Greece’s pensions are more generous than its weak economy can bear.

Mr. Katrougalos last week sent eurozone authorities and the IMF the government’s proposed pension reform, which aims to balance the books mainly by streamlining pension funds, raising social-security contributions, and reducing future retirees’ entitlements, while protecting the incomes of today’s pensioners.

The government faces a tricky balancing act between its creditors and Syriza’s lawmakers and voters. Mr. Katrougalos said the IMF’s persistent call for pension cuts was out of tune with Europe’s belief in a strong social safety net.

“Our life would be much easier if we could discuss just with the Europeans, that is clear,” he said. But he acknowledged that some European creditors, led by Germany, view the IMF as vital for imposing fiscal discipline on Greece in exchange for its bailout loans.

Write to Nektaria Stamouli at nektaria.stamouli@wsj.com and Marcus Walker at marcus.walker@wsj.com