ATHENS, Greece -- The triumphant return to power of Greek Prime Minister Alexis Tsipras and his Syriza party after the country's Sept. 20 elections comes at a heavy price.
The bailout agreement struck between Greece and its lenders this summer came with a package of harsh austerity reforms that have to be legislated and implemented in the months ahead. Greece's new cabinet is pushing through the measures, which will change the country's economic and social landscape for years, while managing the anger and frustration of affected social groups, economic sectors and professions.
Take a look at the five biggest challenges ahead:
The bailout agreement requires the Greek government to legislate reforms to restructure Greece's pension system by October 2015 and implement those measures by January 2016 in hopes of saving the government 1.25 percent of GDP by the end of next year. Greece has to raise the retirement age to 67 and cut early retirements. One of the most harrowing tasks, however, will be to phase out a top-up solidarity grant for elderly Greeks who have very small pensions by December 2019.
The government has tried to convince the public it aims to protect pensions from further cuts and will propose new measures to alleviate the drastic consequences of the reform. The proposed changes, however, are causing upheaval among pensioners who have already seen their pensions cut since the beginning of the Greek debt crisis and consider the reforms a reversal on Tsipras' pledge of social justice.
2. RECAPITALIZING THE GREEK BANKS
Greece's banks have been hit by an almost 43 billion euro ($48.1 billion) deposit run in the first half of 2015, a three-week bank holiday last July and the imposition of capital controls since the summer. In addition, the banks have been exposed to a large number of so-called bad loans, which have reached an estimated 45 percent of the banks' loan books.
Supporting the banks has become one of the new government's priorities, as a stable political and financial environment is crucial for the banking system to attract investment. But it is unclear exactly how much money the banks will need to stabilize.
The magnitude of the problem will become apparent by the end of October, when the European Central Bank will review the state of Greece's banks and will calculate how resilient they are likely to be in the event of possible future hardships. The bigger the amount required to recapitalize the banks, the more current shareholders are going to be negatively affected and, at the same time, the heavier Greece's debt is going to get as more bailout money will be needed.
The third bailout program currently reserves up to 25 billion euros ($27.9 billion) in bailout funds for the recapitalization of banks. And it looks like almost the entire amount, up to 20 billion euros ($22.3 billion), will be used, Kathimerini newspaper reported.
It is worth noting that this is going to be the third recapitalization of Greek banks -- the first one worth 28 billion euros ($31.3 billion) happened in the summer of 2013 and the second was in the spring of 2014 and amounted to 8.3 billion euros ($9.2 billion) -- it was covered exclusively by private investors.
A successful bank recapitalization before the end of the year is a necessary step toward growing the Greek economy, together with debt relief. But if Greek banks aren't fueled with sufficient funds, a “haircut” on deposits over 100,000 euros ($112,000) may become a reality, according to Greek Finance Minister Euclid Tsakalotos.
3. LABOR RELATIONS
Labor legislation is another area that won’t be spared sweeping changes. In October, the government will start consulting independent experts to review the existing labor market framework. The probe will look at “burning” issues, such as the right of firms to effect collective dismissals, and the regulation of collective bargaining. Subsequently, a bill on these topics is to be passed, based on best practices applied in the European Union. These changes will ensure that the fiscal adjustment programs are upheld.
Also, by December, the Greek government should have voted on a comprehensive law against undeclared work, which will include important changes in the role and function of the national labor inspectorate.
The new rules governing labor relations are aimed at making Greece more attractive for investors. They will, however, dismantle established labor rights and are likely to trigger explosive reactions among employees and syndicalist unions.
Unless the government can come up with an alternative, the bailout agreement requires Greece to privatize a number of sectors, most urgently the country's national electricity grid operator, ADMIE.
This will be a major test for the resilience of Alexis Tsipras' new government, as the electricity company is home to a trade union that has proved to be especially dynamic in fighting against anti-worker policies in the past.
Greece's creditors require the country to make urgent fiscal adjustments, and the clock is ticking. The government needs to tackle hot potatoes, such as phasing out the preferential income tax rates for farmers, and abolishing the tax subsidy on diesel oil. Farmers are already reacting to these planned reforms and have vowed to close national roads in protest.
Another planned tax adjustment concerns the introduction of a tax on television advertisements, as well as the announcement of an international public tender for the acquisition of TV licenses and usage fees for television frequencies. These imminent reforms are bound to completely change Greece's media landscape, as new players will enter and existing ones are likely to be disempowered.
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