Crunch time

Prospects for a Thursday deal between Greece and its creditors did not look encouraging on Wednesday, as an increasingly confrontational atmosphere prevailed in Athens.

Parliament speaker Zoi Konstantopoulou refused to take possession of the central bank’s annual monetary policy report, calling it an “unacceptable” attempt to influence the ongoing negotiation.

Syriza supporters rally against austerity on Syntagma Square on Wednesday.

The report warns that failure to reach agreement will lead to a default and an exit from the Eurozone. What would follow would be, a “deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership.”

Konstantopoulou has launched her own, parliamentary Truth Committee on the Greek Debt, which aims to chart the debt’s makeup and history. The Committee is to release a preliminary report on Thursday.  

Earlier on Wednesday, Prime Minister Alexis Tsipras told reporters that Greece had submitted counter-proposals to creditors, which went a long way towards fulfilling their demands.

These include a “significant increase” in revenue from consumer tax this year and next, “but without the extreme measures demanded on medicine and electricity.”

“The gradual abolition of early retirement beginning in 2016 will save 2.5bn euros over the 2016-22 period,” Tsipras added.

Creditors have made clear that such measures will not be accepted at Thursday’s Eurogroup meeting. The European Committee and Central Bank, along with the International Monetary Fund want Greece to axe early retirement immediately, saving 1.8bn euros a year beginning this year.

Pension experts are doubtful about whether that can be done. “They can maybe glean 800mn euros by eradicating supplementary pensions and 300mn by lowering subsidies for medicine even further,” said Yiorgos Koutroumanis, who as labour minister presided over earlier austerity cuts to pensions in 2010, “but that’s about it. They’d have to get the rest of the 1.8bn somewhere else.”

Creditors have also ordered the Greeks to consolidate a complicated consumer tax, or VAT, into a standard rate of 23 percent, and strictly enforce it, saying that there are losses because of the multi-tiered structure of the tax. This, they believe, should generate another one percent of GDP in revenues.

The Greeks counter that this would hike VAT on electricity by ten points, just months after the government passed a bill to spend 200mn euros subsidising power to destitute households.

The IMF’s chief economist explained why he deems these measures necessary, in a blog post on Wednesday. “We believe that… absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher,” wrote Olivier Blanchard.

He added: “Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone.  Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP.  We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.”

Tsipras was equally clear that his government will not retire from its trenches. “If Europe insists on this incomprehensible contention, it must assume the cost of a course which will be beneficial to no-one in Europe.”

The FT's Martin Wolf warned against such entrenchment on both sides. "Neither the Greeks nor their partners should imagine a clean break. The relationship will continue. It will just be poisonous," he wrote. "If, tragically, that fate cannot be avoided, it will have to be managed for a very long time." 

John Psaropoulos