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24/09/2016

Greek negotiations reach new deadlock

Euro & Finance

Greek negotiations reach new deadlock

Alexis Tsipras

[Joanna/flickr]

Despite optimism at Monday’s emergency summit that a deal could be reached this week, new developments demonstrate that a significant gap remains between Athens and its lenders. EurActiv Greece reports.

Ahead of a crucial meeting of eurozone finance ministers today (24 June), Greek premier Alexis Tsipras held talks in Brussels with the heads of the European Commission, the IMF and the European Central Bank.

Tsipras proposed a package of measures mostly based on hikes to VAT and corporate taxes, as well as increases to pension contributions both for employers and employees.

>>Read: Greece bailout extension on the cards at Eurogroup

According to a document seen by The Wall Street Journal on Wednesday, there are still major divisions between Greece and its international creditors over the proposed measures by Athens.

Press reports suggest that international lenders rejected Greece’s VAT-based proposals, as they would increase the recession, and at the same time would hamper growth. In response, creditors proposed “permanent cuts”.

“The latest proposals are definitely rejected by the Greek side,” stressed a government source according to press reports in Athens.

Before flying to Brussels, Alexis Tsipras, fueled speculation after he tweeted that certain creditors are not interested in a deal:

Private sector mostly hit
Analysts fear that the new deal proposed by Athens has dealt another blow to the private sector.

Cash-strapped Greece has been seeking foreign investment for the last 5 years, but the new measures floated by the coalition government do not inspire confidence.

Among the proposals is the tax rate of SA and Ltd. firms (no freelancers and sole proprietorships) being increased from 26% to 29% by 2016, and a special levy of 12% to be imposed on businesses with profits of over 500,000 euros.

Greece’s creditors are allegedly opposed to it, and propose a decrease to 28%.

The Greek side also proposes raising contributions to IKA, the largest Social Security Organisation in Greece, by 3.9% (2.9% of employer contributions and 1% of employee contributions).

The same percentage was decreased in July 2014, aiming at boosting entrepreneurship. The latter initiative is estimated at raising 350 million euros in 2015, and 800 million in 2016, in public revenue.

Potami concerned over tax hikes

Charis Theocharis, former Secretary General for Public Revenues and current centre-left Potami MP, told EurActiv Greece today that the new plan will inevitably increase the recession of the debt-ridden country, as well as already high unemployment levels.

“It’s obvious that the new plan almost agreed on by Athens and its international creditors is much more recessionary compared to Juncker’s plan proposed in Berlin’s meeting,” Theocharis said, explaining that the new plan is mainly based on taxation.

The lawmaker continued, saying that the taxes are more comparable to the first and second bailout.

“[The new plan] It will lead to greater recession and in consequence to higher unemployment levels,” he concluded.

>>Read: Leftist Syriza MPs to reject new EU deal

Similar concerns on tax hikes were recently expressed by the ALDE President Guy Verhofstadt.

“We had expected the Greek government to propose a serious reform plan to dismantle the Greek clientelistic political system, open up the Greek economy, reinvigorate the labour market and to fight entrenched corruption in Greek society,” Verhofstadt said.

“Unfortunately, so far we have only seen attempts to raise taxes and proposals to scrape together the last euros they can find, to reimburse their creditors. This is a quick-fix, short term policy, instead of a badly needed sustainable reform plan to give Greek society the means to emerge stronger from this crisis,” he added.