Wednesday 17 January 2018

Greece crisis: Greeks capitulate offering tax hikes and pension reforms, main opposition party backs bailout proposals

A demonstrator waves a European Union flag in front of the Greek Parliament during a rally in Athens (AP)
A demonstrator waves a European Union flag in front of the Greek Parliament during a rally in Athens (AP)
Members of the European Parliament hold placards which reads "No - Freedom to Greece" ahead of the speech of Greek Prime Minister Alexis Tsipras at the European Parliament in Strasbourg, France, July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Vincent Kessler
Greek Finance Minister Euclid Tsakalotos (L) and former finance minister Yanis Varoufakis talk during a parliamentary session in Athens
A Greek flag flies behind a statue depicting European unity outside the European Parliament in Brussels this week – the hard political reality is that when it comes to Greece against the rest, the rest is always going to win
Greek Prime Minister Alexis Tsipras addresses the European Parliament in Strasbourg, France, July 8, 2015. Euro zone members have given Greece until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe's currency bloc and into economic ruin. REUTERS/Vincent Kessler
A group of tourists take a selfie in front of the temple of the Parthenon atop the Acropolis in Athens, Greece
A pensioner wearing an oxygen line tries to enter a crowded National Bank branch to get her pension in Thessaloniki
Pensioners wait to enter a bank as others queue to use the ATMs of the branch in Athens (AP)
Greek Prime Minister Alexis Tsipras leaves his office in Maximos Mansion in Athens, Greece July 9, 2015. REUTERS/Alkis Konstantinidis
A Greek woman pauses by a broken marble National Bank sign outside a branch in Athens yesterday
A pro-Euro protester holds a European Union and a Greek national flag during a rally in front of the parliament building in Athens. REUTERS/Alkis Konstantinidis

Greece offered new measures including a tax hike on shipping companies and scrapping tax breaks for its islands in the latest proposal sent to creditors on Thursday for a cash-for-reforms deal, as Athens races to win new funds to avert bankruptcy.

Greeks are looking for more money but are offering €4bn extra in austerity, or €12bn, in a bid to secure the €53.5bn bailout deal.

A scheduled summit of EU leaders for Sunday could be cancelled if euro zone finance ministers agree the bailout plan.

Senior EU officials said today that there is a 90pc chance the proposals will be accepted.

Greece's main opposition conservatives said on Friday they would back the leftist government of Alexis Tsipras to secure a cash-for reforms deal with the country's international creditors that will keep the country within the euro zone.

Lawmakers are due to vote later on Friday on proposals presented to Greece's creditors which include measures to raise taxes, introduce a raft of privatisations and cut public spending in areas such as defence.

"The New Democracy party gives the prime minister not only the authorisation to reach an agreement, but also the mandate to avoid the country's exit from Europe and the euro," the party said in a statement.

The plan is also being analysed by creditors the International Monetary Fund and the European Central Bank.

European stocks surged at the open on Friday after Greece submitted fresh reform proposals to its euro zone creditors, making substantial concessions in a bid to win new funds and avert bankruptcy.

The pan-European FTSEurofirst 300 was up 1.5 percent at 1,533.63 points by 0706 GMT, with the euro zone blue-chip Euro STOXX 50 rising 2.2 percent.

Traders said that the latest reform plan had made investors cautiously optimistic that a deal could be struck by Sunday's deadline.

"The proposals appear to offer additional concessions from Greece on the key issues that have stalled negotiations this year," said Craig Erlam, senior market analyst at OANDA.

Read more: Five things we've learned this week as bailout deal looks closer

A provision to raise the pension age to 67 is expected to be controversial as are the tax rises but Greece also needs to grow its economy and needs help with that plan.

European leaders meeting in Brussels to discuss the plan this weekend.

The government also plans to raise value added tax for restaurants, roll out pension reforms and to set a firm timetable for privatizations.

In return, Athens wants the creditors to review the primary surplus targets for Greece over the next four years and wants funding worth 53.5 billion euros to cover its loan obligations until the end of June 2018.

Greek Interior Minister Nikos Voutsis said on Friday he was optimistic the country could clinch a "good agreement" on terms of a bailout package submitted to creditors on Thursday night.

"We are optimistic of a very good agreement. We will discuss it and I'm optimistic all will go well," Voutsis told journalists ahead of a meeting of lawmakers from the ruling Syriza party in parliament.

The Greek daily Kathimerini said the package was worth 12 billion euros, bigger than a previous 8 billion euro plan because the economy - battered by two weeks of capital controls - was now expected to shrink 3 percent instead of growing 0.5 percent this year.

A government official, speaking on condition of anonymity, disputed the Kathimerini figure, saying the package was still a work in progress.

The offer must go far enough to satisfy sceptical creditors but may face resistance from the hard-left wing of Tsipras' Syriza party and from his junior coalition partner, the Independent Greeks, after the government campaigned and won a resounding 'No' to more austerity in a referendum on July 5.

In a sign of the some of the upcoming challenges Tsipras will face, the leader of the far-left flank of his Syriza party came out to denounce any imposition of harsh measures on Greeks.

"We don't want add to the past two failed bailouts a third bailout of tough austerity which will not give any prospects for the country," Energy Minister Panagiotis Lafazanis told reporters. "Greece is not facing execution, it is not ready to accept any fait accompli."

But Lafazanis also said it was clear Greece was looking to reach a deal soon with the institutions that will respect the "dignity" of people, leaving the door open for him to eventually back an agreement struck with creditors.


Other Syriza lawmakers said they would wait to be briefed on the proposals before deciding their positions.

"We have to wait and see. The deal must not include austerity measures, wage and pension cuts, must address the debt issue and include a growth package," one far-left Syriza lawmaker said.

With banks shuttered and the economy grinding to a halt after two weeks of capital controls, Syriza rebels will have a tougher time making their case against any deal with creditors that paves the way for banks to open again.

Greece's European partners want the reforms proposal on the table by Friday and Athens has promised to produce it on Thursday at the latest. If satisfied, the European leaders would endorse the package on Sunday, averting a potential Greek exit from Europe's single currency.

Greece emerged last year from a deep recession that shrank its gross domestic product by a quarter over a six-year period, leaving a quarter of the workforce unemployed.

Athens wants creditors to lower budget surplus targets because of the economy slipping back into a recession this year but is not expected to outline its request for debt relief in the proposal being sent on Thursday.

Government sources said proposed tax hikes would include - an increase in corporate tax to 28 percent from 26 percent; a rise in VAT on luxury goods to 13 from 10 percent; a rise in VAT on processed foods, restaurants, transport and some health services offered by the private sector to 23 from 13 percent and a VAT hike on hotels to 13 percent from 6.5 percent.

Greek islands would continue to enjoy tax breaks that creditors had sought to scrap under the proposal - a nod to Tsipras's right-wing coalition partner, which has made the issue one of its red lines.


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