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Greek flag

by Graham Terry

Politics in Greece continues to be very much dominated by the ongoing EU financial bailout and debt repayment negotiations between the government here, and the EU creditors (the IMF, The European Central Bank and the European Union). And the situation changes daily.

There was cause for some optimism at the start of the weekend, following the much anticipated meeting between Greek Prime Minister Alexis Tsipras and his counterparts in Germany and France, arguably the two biggest players. Though the meeting itself in Belgium brought no breakthrough, there was hope that a 9-month extension to the programme tabled by Greece, may lead to deal in time for the next Eurozone finance ministers’ meeting on the 18th June. The terms of that extension remain under consideration.

The view from the few Greeks I have talked to on this is that there will ultimately have be a deal, because (they say) Europe stands to lose even more than Greece. Misplaced optimism? Certainly the optimism appears to have nosedived this morning (Monday) with the news that the wider talks with the EU creditors broke down late on Sunday (the IMF had reportedly already flown home before the weekend). One person I spoke to wondered whether Europe would ever be able to do a deal with Syriza-led government, when to do so might be seen by the right-leaning European elite as reward for the left – at a time when other left-wing parties are also making inroads in other financially vulnerable European countries.

To outsiders, Tsipras looks to have been making more progress with Merkel and Hollande over the last week on a deal that will save Greece from default, rather than engaging with his own party members within Syriza; according to local media there is a pro-drachma block inside Syriza that claims no further austerity will be implemented (though to be fair, they were elected on an ant-austerity platform), while at the same time its leader, Tsipras, faces a hurdle of billions in austerity cuts to be absorbed. The inconsistency in this has certainly unsettled the markets, and is leading people here to flock to the banks to withdraw money on daily basis (in my own branch of Piraeus Bank, I have seen anything between 30 and 40 people prepared to wait for an hour or more to see a cashier).

So what are the issues? Well, the main sticking points on any agreement might be summarized as follows:

Pensions – the creditors want cuts of €2 billion this year, plus an end to so-called auxiliary pension top-ups by government (and which many Greeks receive). Greece are unable to accept either;

Sales Tax – there are currently three rates on goods (6.5%, 13% and 23%). The creditors want two rates only (11% and 23%), which means that some of the lower-rated items (food, medicines, electricity, hotels & restaurants) will need to be hiked up in price. Greece says that this will not only affect the poor disproportionally, but will hit the crucial tourist industry hard. This is especially true on some of the islands, were lower rates of VAT apply.

Labour Market – Greece wants to restore the minimum wage from €580 to €750 (monthly) by the end of next year, and also reintroduce collective bargaining. Both are rejected by the creditors.

Budget – Excluding debt servicing costs, the creditors want primary budget surpluses (sounding familiar?) of 1%, 2% and 3% of GDP in 2015, 2016 and 2017 respectively. Greece is

offering 0.75%, 1.75% and 2%. But with GDP shrinking (the country is back in recession, due at least in part to exiting austerity measures) any surplus at all will require further severe austerity measures to be implemented.

So these are the big issues that remain in dispute. What has been agreed thus far is the opening up of closed professions (for example, non-prescription medicines can currently only be purchased in official pharmacies, and not supermarkets), a crack-down in tax evasion, the sale of some State assets and making the justice system more efficient.

Debt relief appears for some reasons to have fallen off the agenda (despite creditors promising to talk about this last year), though Greece has said in the past that it will not sign up to further austerity unless some provision for debt relief is also on the table.

We all await keenly the outcome of Eurozone finance ministers’ critical meeting on Thursday, which is being billed as a defining moment in determining where Greece goes next.

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