Bank of Greece governor Yannis Stournaras gave a stark warning about the risk of Greece failing to reach an agreement with its creditors on a set of measures attached to the country’s bailout as Prime Minister Alexis Tsipras reiterated his government won’t succumb to “unreasonable” demands for additional pension cuts.
The European Union is now much less prepared to deal with another Greek crisis, Stournaras wrote in an article published in Kathimerini newspaper, in an unusually strong public intervention, as Europe’s most indebted state braces for negotiations with creditor institutions on a set of tough economic steps, including pension and income tax reform. A repeat of the 2015 standoff which pushed Greece to the verge of leaving the euro area would entail risks that the country’s economy may not be able to withstand, the central banker said.
After months of brinkmanship which resulted in the imposition of capital controls last summer, the government of Alexis Tsipras signed a new bailout agreement with the euro area committing Greece to economic overhauls and additional belt-tightening in exchange for emergency loans of as much as €86bn ($93.4bn). Greece will implement the agreement, Tsipras said in an interview with Real News newspaper published on Saturday, adding though, that creditors should be aware that the country “won’t succumb to unreasonable and unfair demands” for more pension cuts.
Greece will reform its pension system, which is on the “brink of collapse” through “equivalent” measures targeting proceeds equal to 1% of the country’s gross domestic product in 2016, Tsipras said. The proposals include raising mandatory employer contributions, according to the country’s Labour Minister, George Katrougalos. Creditors oppose an increase in compulsory contributions, as they argue these create a disincentive for hiring workers and declaring incomes.
Negotiations with representatives of the European Commission, the European Central Bank and the International Monetary Fund will be “tough,” and the government is redoubling its efforts to find “diplomatic” support, Katrougalos said in an interview with To Ethnos newspaper, also published on Saturday.
Stournaras warned, however, that escalating discussions to a level of European Union leaders would be “exceptionally dangerous,” at a time of open divisions within the bloc on issues ranging from immigration to banking union. Stalling negotiations would deepen recession, and lead to a tightening of restrictions in the movement of capital, according to Stournaras, who is also a member of the Governing Council of the European Central Bank. 
The government must implement the agreement that it negotiated last summer and parliament must back it, Stournaras said, blaming the capital shortfall of Greek lenders identified last year on the prolonged wrangling between Tsipras and euro-area states.
In addition to pension reform, creditors also asking Greece to implement more belt-tightening in order to meet an agreed primary surplus target of 3.5% of GDP, excluding interest payments, by 2018. According to Greece’s finance minister Euclid Tsakalotos, the International Monetary Fund isn’t convinced how the country will meet this target. The IMF doubts the efficiency of some measures already adopted and is more pessimistic on its assumptions about the Greek economy, Tsakalotos said in an interview also published Saturday in Kathimerini.
Greece has covered 75% of the fiscal consolidation required to make its debt sustainable, Stournaras said. If it wasn’t for the “backtracking” of the first half of 2015, 85% of the distance would have been covered by now, according to Stournaras, who also served as Finance Minister in the previous conservative government led by Antonis Samaras. “Today, a new backtracking is unthinkable,” he said.