Creditors and the Greek government will face a tough time agreeing on the economic progress Greece has to achieve in return for another mammoth bailout.
Technical aspects were at the center of initial talks in Athens on Tuesday as Greek authorities and technical staff from the country's creditors sat down again to tackle topics like pension and labor-market reforms ahead of high-level talks in Athens later this week.
The European Commission will be represented by Declan Costello, the European Central Bank by Rasmus Rüffer, and the International Monetary Fund by the newly-anointed mission chief Delia Velculescu, a Romanian economist who previously lead the Fund’s mission to Cyprus.
The group formerly known as the “Troika” is now being renamed as "Quadriga" to note the inclusion the European Stability Mechanism (ESM) in the talks. The ESM - eurozone’s bailout fund which will fund the third rescue package – will be represented by of mission chief Nicola Giammarioli.
After assuming office, Greek Prime Minister Alexis Tsipras declared that the unpopular "troika" was finished, and refused to let international monitors into Greek ministry buildings. Members of Tsipras’ hard-left party Syriza depicted the group’s presence as a ritualized humiliation of the Greek people. Negotiations took place in Brussels (and sometimes Paris) instead but still failed to produce a disbursement of funds from Greece’s previous bailout package.
Nevertheless Tsipras's radical left government had to accept the inspectors' return to Athens after the Greek parliament voted for a two sets of tough new conditions set by the EU lenders for talks on the bailout.
While the Greek government and its creditors have agreed to let inspectors enter ministry buildings and institutions such as the Bank of Greece and the General Accounting Office, it remains unclear how much access they will have to several key ministers.
Meanwhile sticking points remain with the creditors demanding a third package of "prior measures" to be voted in Parliament, including tax hikes, pension cuts and introducing a single pay scale for civil servants before negotiations conclude.
Athens argues it has already taken the short-term measures it promised under the political deal on a new bailout reached with European leaders on July 12. However, the Greek parliament omitted a measure that would end decades-old tax breaks enjoyed by farmers.
Besides tax hikes on farmers, changes in early retirement which have been the stickiest point in the negotiations, have not been included in last week's package.
In terms of pensions, Greece's creditors demand reforms to create strong disincentives to early retirement (including changes to early retirement penalties), gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019, and increase the health contributions for pensioners from 4% to 6% on average and extend it to supplementary pensions.
In the longer term the government must also raise €50 billion from privatizations and undertake market reforms including liberalization of Sunday trading and deregulation of its dairy, bakery and pharmacy sectors.
Discussions are aimed at crafting a new rescue package of up to €86 billion to head off Greece's bankruptcy.
Greece for its part said it intended to conclude the talks with creditors by August 18, just two days before a €3.2 billion payment to the European Central Bank is due, though if the full bailout package is not ready by then, the EU could further bridge financing.