Wednesday, 3 June 2015

Greece and creditors: Key differences

Greek Prime Minister Alexis Tsipras said that "the proposal submitted by the Greek side remains the only realistic and constructive proposal on the table," early on Thursday morning, after a late night meeting with European Commission President Jean-Claude Juncker.

They are to meet again on Friday, in an attempt to hammer out a last-minute deal on how to finance the debt-stricken nation after June, when two controversial facilitation loans Greece signed onto in 2010 and 2012 run out. Greece has borrowed 240bn euros from the European Commission, the European Central Bank and the International Monetary Fund. 

Tsipras and Juncker have, over the past weeks, reached broad agreement on a plan. Juncker hopes to act as a mediator and facilitator of a deal with Greece’s other two institutional creditors

Tsipras, while praising the Commission for its "constructive" work, criticised a counter-proposal submitted by the three creditors, but which the Greek side believes is IMF-inspired. "Proposals that resurrect ideas about cutting auxiliary pensions to low-earning retirees or increasing VAT on electricity bills by 10 percentage points, are proposals that cannot, naturally, form the basis of any discussion," he said. 

The Greek proposal was sent to creditors on Monday night. Creditors sent their counter-proposal on Tuesday, but before leaving Athens Tsipras denied having any knowledge of it.

"Until today we haven't received any comments on [the Greek] proposal, but nor have we received some other text, which we hear of, from our institutional partners."

Greek negotiators are pushing back the deadline for a deal to June 14, but Greece owes the IMF more than $1.6bn this month. The first of four payments is due on Friday. Without a deal, the ruling leftwing Syriza party has intimated it may choose to default against its creditors in order to maintain public salary and pension payments at home. The country is cut off from markets and in danger of financial collapse. 

On the basis of information leaked to the media and not yet denied by either side, the biggest difference between Greece and its creditors appears to be that Greece proposes spending no more than 1.5bn euros of taxpayer money repaying debt this year, or 0.85 percent of the economy. That would rise gradually to 3.5 percent, committing 6bn of taxpayer money to debt repayment. But creditors demand that level of repayment immediately.

Greece says it has to hold back some of its surplus to reinvest in growth and jobs. Extending the repayment of its 312bn euro debt in order to spend less taxpayer money on it each year was Syriza’s central campaign promise in January. The party is unlikely to accept a deal which treads on it.

The Greek side is also very determined to have its document adopted as the basis for talks. Greek officials have said that as long as the document comes from its creditors, it will foster recession and human suffering.

And Greece also has to boost tax revenue, because it faces a shortfall this year. Creditors say it must raise an extra 1.8bn euros. Greece says the shortfall is closer to a billion euros.

Greece has also made compromises to key election promises, which Tsipras published in an article in Le Monde on Sunday. 

He will allow a roundly unpopular property tax to remain in force this year. The tax raised 2.6bn euros last year  - about five percent of tax revenue - and more than 3bn the year before.

Tsipras agrees not to restore minimum wage to its pre-crisis level of 731 euros immediately, but in stages beginning next year. It was cut in 2012 to 586 euros.

Early retirement will end, and the country’s 13 main pension funds will coalesce and streamline benefits to affordable levels.

While talks have dragged on, however, the Greek economy has been grinding to a standstill, and its growth forecast this year is close to zero. 

John Psaropoulos

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