Greece's red lines start to blur and bend

Blur Song 2

Like a husband forgiven for countless infidelities, Greek leader Alexis Tsipras is back in Brussels with a wink and a smile and yes, another kiss and make-up proposal. Only this time, it looks like the marriage is saved.

Tsipras has for the first time in several months taken the time to consider the concerns of his partners and rather than simply demanding solidarity, he has put together a plan to patch things up.

What his partners want is simple, if difficult to achieve without further sacrifices. They want to close a funding gap in this year’s budget that most analysts estimate at €2bn (£1.4bn).

It would appear that the leader of the leftist Syriza government has done enough to keep alive his country’s hope of staying inside the euro. The question for his supporters at home will be, has he ditched his principled stand against further austerity, and if he has, do they care?

Tackling the towering cost of the Greek pension system was once considered a no-go area. Already cut by his predecessors, Tsipras had ruled out shaving anymore from the bill. Likewise VAT was off the agenda. Now it seems he is prepared to compromise on both issues.

On pensions, Athens appears to have conceded that the government’s coffers must be shielded from a wave of early retirements.

According to documents supplied by Tsipras’s finance minister, Yanis Varoufakis, there are 400,000 Greeks looking to retire this year who qualify for a state pension, most of them under the existing early retirement rules.

That’s a whole bunch of 60- and 61-year-olds who want to get under the wire, probably to supplement a meagre income from working or to serve as an unemployment benefit, all at a huge cost to the public purse.

There is already a plan drawn up by the previous Greek administration to phase out early retirement by 2025. But that does little to stop the 400,000 people looking to get their hands on a retirement income this year. Now there will be some further restrictions, which will please Greece’s troika of lenders – the International Monetary Fund, European commission and European Central Bank (ECB).

Higher contribution charges for people in work and a supplementary health charge for the wealthiest retirees is another tick on the austerity wall chart.

Tax is another thorny issue. Apart from Tsipras’s plans to squeeze the rich, not a surprise from the leader of a leftwing party, there is now a plan to raise some more tax revenues from higher VAT. While the three tiers of VAT remain in place and Athens insists electricity remains on the lowest band, some areas will be clobbered by a bit more tax. We are not sure which areas, possibly a higher rate applied to some islands, but suffice it to say Tsipras has relaxed his objection to any further rises in VAT. This year, extra VAT will raise €680m and next year €1.3bn, according to the Greek budget presented to the troika.

It is worth nothing that until last weekend, pensions and VAT were red lines that could not be crossed.

In an interview with the BBC, Greek economy minister George Stathakis chose to dwell on other initiatives to break the deadlock. He has put forward an increase on tax surcharges that middle and high-income earners pay, together with an extra levy on companies with annual net income of more than €500,000 and a hike in corporation tax from 26% to 29%.

According to Stathakis, taxing the rich and large corporations will help raise €2.6bn, more than is needed. Greece, he claims, has achieved the 1% budget surplus - the amount that tax income exceeds state expenditure as a proportion of Greek GDP - demanded by the troika without crossing any red lines.

But Stathakis is dissembling. Who is going to accept his denial that a health charge on pensioners is not strictly a pension charge? Not many. It is understandable why he would want to play with words. The ruling Syriza government is preparing a victory parade with banners declaring that Brussels caved in to pressure while it stood firm, especially on further cuts to pensions.

It is also a long way from the original Varoufakis plan to tackle Greece’s growing debt mountain, which involved extending the life of loans worth billions of euros to cut the interest bill. This attempt to forge a long-term solution was rejected by the troika and provided the basis for the impasse of the last few months.

Now we have a short-term fudge. And there is no doubt that a small budget shortfall can be fudged, especially now that concessions are on the table in areas that were previously out of bounds.

For this sacrifice by the Greeks, the troika is now expected to pull out all the stops and wave through the last €7.2bn of funds due under the existing bailout programme. With that, Greece can limp on. But this remains an unhappy relationship.

Powered by Guardian.co.ukThis article was written by Phillip Inman Economics correspondent, for theguardian.com on Monday 22nd June 2015 19.35 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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