By George Georgiopoulos
ATHENS (Reuters) - Greece's central bank chief has urged the leftist-led government to implement bailout reforms agreed with the country's lenders, warning that backtracking would entail risks the economy could not withstand.
Prime Minister Alexis Tsipras' ruling coalition, which has a majority of just three seats in parliament, faces tough pension reforms that will test his resolve to carry out measures demanded by international creditors.
Reforming the country's ailing pension system is a prerequisite for the first review of Greece's 86 billion euro ($93.4 billion) bailout agreed in July last year.
"The successful completion of the programme's first review is certain to have a very positive impact on confidence. It is the key for the return of deposits to the banking system," Bank of Greece Governor Yannis Stournaras wrote in an article in Sunday's edition of Kathimerini newspaper.
"A potential failure in completing the review would be destabilising, bringing to memory the experience of the first half of 2015. A repeat of that experience entails large risks, difficult for the economy to withstand this time."
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Tortuous talks with the country's euro zone partners and the International Monetary Fund last year as Athens sought unsuccessfully to undo austerity measures led to a three-week shutdown of banks and the imposition of capital controls.
Stournaras wrote that Greece's fiscal adjustment since 2010 when its debt crisis exploded is three-quarters of the way towards the ultimate goal of a primary budget surplus of 3.5 percent of economic output by 2018.
"NORMALITY IS NEAR"
A successful first review would open the way for talks to lighten Greece's debt burden, the gradual lifting of capital controls and the acceptance by the European Central Bank (ECB) of Greek government paper as collateral for bank financing.
The review's completion would also allow the ECB to include Greek government bonds in its quantitative easing programme, the central banker wrote.
"The exit from the crisis and a return to normality is near. The government must fulfil the contract it negotiated with its lenders and take initiatives to improve a climate of trust," Stournaras wrote.
Failure to complete the review, however, would undermine trust, intensify the recession and lead to more bad loans on bank balance sheets, he said.
In an interview with Sunday's Realnews newspaper, Tsipras said the country's pension system was on the verge of collapse and that his government was working to fix it.
"Our lenders must know that we will stick to the letter of the (bailout) deal, without this meaning that we will yield to irrational or unjust demands," Tsipras said.
Tsipras said he was confident that more than his coalition's 153 deputies in the 300-seat parliament would support the pension reform legislation and that his government aimed to conclude the first bailout review before the end of February.
(1 US dollar = 0.9210 euro)
(Editing by David Evans and David Clarke)