Hard for Greece to avoid privatization, pension reform: EU officials

By Jan Strupczewski BRUSSELS (Reuters) - Greece can choose its own reforms to unblock the flow of loans from international creditors and stave off bankruptcy, but it will have a hard time avoiding privatizations and a pension reform because of their budget impact, European officials said. A new left-wing government and euro zone creditors agreed last week that Athens would present within days a list of its own reforms that must achieve similar fiscal results to the measures agreed by the previous conservative-led cabinet. "The last government did not complete the 'prior actions' necessary for the final disbursement. Nothing has changed, the prior actions are the same. But the measures can be changed if they do not jeopardize debt sustainability," one euro zone official said. Which reforms to choose is politically sensitive because the Syriza party of Prime Minister Alexis Tsipras won a general election in January on a platform of ending the policies of its predecessors, including budget austerity and measures it regards as recessionary. If the creditors agree the substitute plans will achieve an impact equivalent to the previously agreed measures, Greece would get more loans from the euro zone and the International Monetary Fund, averting bankruptcy and a possible euro exit. The starting point for talks with the IMF, the European Central Bank and the European Commission -- "the institutions" -- is a long list agreed to by Tsipras' predecessors. "They need to persuade the institutions that some of the measures should not be undertaken - to be either dropped, or supplemented by others," one senior euro zone official said. Privatization is likely to be one of the major hurdles, officials said, because it was due to contribute 4 billion euros to the budget this year alone. The Tsipras government does not want to sell state assets, although it has agreed in principle not to stop sales that had been initiated already. A reform of the pension system is another sticking point, where the EU is concerned about early retirement privileges and the need to link benefits to the size of contributions. Under the agreement with the previous government, Greece was due to pass a law merging supplementary pension funds, but the new government is strongly resisting that because it would entail a further cut in pensions for many Greeks. The creditors also want changes in the Value Added Tax system to eliminate a reduced rate charged on Greek islands and double the VAT for hotels to 13 percent. Athens says that would hit tourism, its main revenue stream. Other key reforms include an effective insolvency law for individuals and companies, collective dismissal laws and ways to quickly settle wage disputes, and energy price liberalization. Finally, officials noted that tax collection itself would have to improve for the budget to function. "I don't see how Greece's finances could come to order unless they manage to considerably improve the tax collection systems," a third official said. The task is not made any easier by the fact that Greece is running out of money and has little time to pick and choose among the measures or to prepare new ones from scratch. "They have a week or two at best," the senior official said. Once Athens agrees on the list with its creditors and starts implementing the changes, more loans could start flowing gradually. "This is where there can be flexibility, they can do it step by step and get step by step money," the senior official said. (Additional reporing by Deepa Babington in Athens; Reporting By Jan Strupczewski; Editing by Paul Taylor)