Greece approves pension and tax reforms, but analysts less than positive

Greece's parliament approved pension and tax reform measures over the weekend, which analysts said may help the country to clinch access to the emergency funding it required to avoid another recession, although they continued to show concern regarding the medium-term growth potential of the economy.

Following two days of marathon negotiations, lawmakers in Athens managed to thrash out a package of reforms which includes reductions to some pension payments, the merger of several pension funds and hikes to social security contributions and taxes on medium and high-income earners.

The combined impact of the new pension and tax measures equate to €3.6bn in revenues or 2.0% of gross domestic product, according to analysts at UniCredit Research.

Eurozone finance ministers due to meet at 14:00 BST were expected to hold out for further approval by Athens of the so-called 'contingency measures' asked of it by the International Monetary Fund, albeit while noting the progress made by Greece, analysts said.

That second set of measures - worth another 2% of GDP in tax measures - was seen as necessary by the IMF to guard against any possible future deterioration in the country's economy that might derail its public finances.

The weekend vote, which saw a majority of 153MPs approve the reforms, with another 144 voting against, brought Athens one step closer to finalising the "long-delayed" first review of its €86bn bailout programme, said Holger Schmieding at Berenberg.

"It raises chances that the review of the third bailout programme agreed after Greece’s futile and costly confrontation with creditors last summer can be wrapped up by late May. If so, reduced uncertainty about the fate of Greece may allow the Greek economy to escape from the renewed recession into which Tsipras/Varoufakis had pushed the country in early 2015," Schmieding said in a research report sent to clients.

However, Schmieding echoed criticism of Greece by the IMF, saying the measures approved on Sunday might again rely "too much on hikes in taxes and social security contributions instead of pro-growth reforms and cuts in entitlements that have become unaffordable due to Greek relapse into recession under Tsipras/Varoufakis.

"To the dismay especially of the IMF, the Greek government continues to see higher taxes as the politically least difficult way forward. For the outlook for investment, job creation and trend growth in Greece, that is not exactly good news, to put it mildly."

Greek prime minister Alexis Tsipras claimed the new pension system had "social justice as its core principle", as only 7.5% of Greek pensioners would see a reduction in the transfers they received.

Also on the table when euro area finance chiefs met on Monday evening would be the question of further debt relief for the stricken Mediterranean nation, in terms of lower interest payments and longer maturities on its stock of debt.

As of 09:58 BST the Athens Stock Exchange's general index was higher by 0.79% to 610.37.