Greece and its creditors reached a deal May 2 on reforms to be carried out by Athens to bring an end to the second review of the country's bailout program, Greek Finance Minister Euclid Tsakalotos said. Greece will now need to pass legislation to cut supplementary social security benefits for medium-income pensioners. Athens has also promised to lower the tax-free income threshold and to privatize some state-owned companies in the energy and mining sectors.
The agreement was hammered out during weeks of negotiations after a preliminary deal was reached between Greece and the lenders April 7. The Greek Parliament is expected to vote on the reforms May 13. On May 22, the Eurogroup of eurozone finance ministers will meet to decide whether to formally conclude the second review of the Greek bailout.
Greece's main opposition party, the conservative New Democracy party, blasted the deal and demanded new elections. Greek centrist party To Potami likewise criticized the government over the tough measures included in the deal. The ruling coalition, formed by the left-wing Syriza party and the right-wing Independent Greeks, holds a majority of only three seats in Parliament. Nonetheless, lawmakers from both parties are expected to back the measures to avoid early elections; recent polls show the coalition falling far behind New Democracy. Moreover, the creditors have promised the Greek government that, if it makes progress increasing its primary surplus (the budget balance excluding debt repayments), it will be authorized to lower taxes and increase public spending in the future.
The deal reached May 2 paves the way for the next bailout payment, which Greece needs to meet debt obligations maturing in July. It also allows for discussions on potential debt relief measures and the participation of the International Monetary Fund in the bailout. German Finance Minister Wolfgang Schaeuble has repeatedly stated that the bailout program can only continue if the IMF joins, but the institution has maintained that it will not participate until there is at least discussion of a plan to make Athens' debt sustainable. A German Finance Ministry spokesman called the May 2 agreement an "important intermediate step" but said the creditors will carefully review Greece's fiscal situation.
The Eurogroup meeting May 22 is expected to produce a general statement on the possibility of debt restructuring to be carried out at a later date. The Greek government needs at least a promise of future debt relief to contain domestic criticism and divisions within the ruling coalition. Germany may promise to discuss the issue, but it will oppose the introduction of any concrete debt relief measures at least until after Germany's general elections in September. According to German newspaper Die Welt, Schaeuble asked his ministry to produce a detailed document on debt restructuring measures that would serve as a draft for an agreement with the IMF. This would bring about a workable compromise for all sides: agree now on debt relief, but delay implementation likely until late 2018 — after both the German elections and the end of the Greek bailout program.