Despite failing to reach an immediate agreement with international lenders, Greece hopes to secure a bailout deal this week to avoid a potential euro exit, after submitting a new “promising” plan which focuses on tax hikes and pension reform.
“We will finalize the
process this week,” European Commission President
Jean-Claude Juncker told reporters after the meeting, as Athens
hopes to secure the final €7.2 billion tranche of its
international bailout to repay creditors interest on its
debt.
So far creditors have refused to release the funds unless Greece
agrees to more austerity measures, which are highly unpopular and
contradict the Greek Prime Minister Alexis Tsipras’ election
promises.
“Alexis Tsipras has convinced us of Greece’s seriousness and
willingness to work constructively,” said European Council
President Donald Tusk, adding that officials will work with
Tsipras’ government to review the latest proposals from Greece.
Greece’s latest plans
“were the first real proposals in many weeks,” Tusk
said.
Athens and the Troika of international lenders – the IMF, the ECB
and European Commission – are gridlocked in negotiations over its
€240 billion ($272 billion) debt. The current total Greek debt
stands at €316 billion ($358 billion).
One of the main splits remaining is over the pensions reform
where the entire system is running a massive deficit. Greeks have
proposed a number of measures to raise another €2 billion via
reforms.
Under the new plan, early retirement elimination would start in
2016 as the government hopes to raise the retirement age
gradually to 67. In addition, Athens is proposing that
supplementary payments to low-income pensioners to be replaced
with another program.
Athens also offered to reform the value-added-tax system and set
the main rate at 23 percent. In addition, Athens proposed to
increase VAT on hotels from 6.5 percent to 13 percent. However
raising VAT on restaurants from 13 percent to 23 percent, as
demanded by creditors, has yet to be resolved. Athens also
remains reluctant to raise a 13 percent VAT rate on electricity.
More tax hikes have also been offered for business that make
above €500,000 ($563,000), and on private incomes over €30,000
($33,800).
By focusing on pensions and tax hikes, Greece hopes to improve
its budget balancing, which has been one of the main points of
contention during the tense rounds of negotiations. The lenders
want Greece to hit a primary surplus target of 1 percent of
annual GDP by the end of the year in the hope of achieving the 2
percent target in 2016 and 3 percent in 2017. Greece instead
hopes to cap the surplus target of 0.6 percent but has signaled
that it might be ready to agree to 0.75 percent.
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‘uncontrollable Grexident’
Tsipras said that after the latest proposals the ball is now in
the creditors’ court.
“We are seeking a comprehensive and viable solution that will
be followed by a strong growth package and at the same time
render the Greek economy viable,” he told reporters, as he
asked for a debt relief as a condition for a deal.
In response to the Greek plea, the European Commission offered
the struggling economy a helping hand to the amount of 35 billion
euros ($40 billion).
“The Commission and I
myself were proposing to our Greek friends a program of 35
billion to be disbursed from now and to 2020,” Juncker said.
The head of the EU commission said that the funds, one billion of
which could be released this year will be provided to create new
jobs in the Greek economy.
“This is not money, to put it simply, for the budget, but
real money for the real economy. This is not only about budgetary
consolidation, fiscal consolidation, although this is of
permanent importance – but we need growth and we need jobs in
Greece,” Juncker said.
Yet German chancellor Angela Merkel, warned that unless the
European Commission, International Monetary Fund (IMF) and
European Central Bank (ECB) reach a new deal with Greece, no new
agreement on bailout funds can be contemplated.
“After the meeting there is no basis for a decision, so this
can only be an advisory summit,” she said, after German
finance minister, Wolfgang Schaeuble, earlier said he had seen
nothing new from Athens.
IMF chief Christine Lagarde also expressed doubt about the Greek
proposal.
“We have a huge amount of work to do in the next 48 hours. We
are not at all at the end of the route,” Lagarde said on
leaving the summit.
If the deal is reached, the new austerity measures still need
approval from the Greek lawmakers.
“These measures cannot be voted, they are extreme and
anti-social. I believe that in the end, this package which you
have at hand, cannot come to the Greek parliament,” the vice
president of the 300-seat House, Alexis Mitropoulos was quoted as
saying by the Guardian.