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04/12/2016

How Greece hopes to make money

Euro & Finance

How Greece hopes to make money

Greek Prime Minister Alexis Tsipras presented a 47-page list of reforms in the context of negotiations with Jean-Claude Juncker. The list contains many recommendations – especially those that have been rejected by donors.

It is a list that Tsipras feels strongly about: at the start of the week, the Greek government submitted a 47-page reform scheme to creditors in light of the negotiations over another billion-euro bailout. The paper, acquired by Tagesspiegel, includes further privatisation and changes to early retirement measures.

Creditors have said the recommendations do not go far enough. Tsipras presented the list of reforms again to European Commission President Jean-Claude Juncker at his meeting on Wednesday (4 June). The most important points are:

Budgetary Surplus

For the current year, the Greek government proposes a primary surplus of 0.6% of gross domestic product (GDP). In response, the creditors proposed a primary surplus of 1% for the current year. The primary surplus is a budget surplus when the debt service is excluded. For the following years, Greece proposed the following primary surpluses: 1.5% (2016), 2.5% (2017), 3.5% (2018 to 2022).

Debt restructuring

The Greek government is aiming to restructure its debt load for the coming years. According to the list of reforms, by 30 June the European Central Bank (ECB) and the European Stability Mechanism (ESM), together with the European Commission, are intended to negotiate the “optimal legal and economic solution” by 30 June regarding repayment of Greece’s national debt, which is still held by the ECB.

Debt repayment through the International Monetary Fund (IMF) is intended to proceed in two phases: In the first phase the IMF loans are supposed to be repaid by 30 June as planned. Subsequently, repayment is planned to be adapted to the country’s debt refinancing process, the paper says.

>>Read: Greece edges towards default as crisis talks flounder

Taxes

Greece wants to introduce a “solidarity tax” which is intended to bring in €220 million in the current year and €250 million over the next year. An extra tax on profits among big companies is supposed to rack up over €1 billion more. In addition, a luxury tax is planned to result in an additional €30 million for government coffers.

Pensions

The Greek side is also offering to harmonise early retirement. In that case, it would no longer be possible to claim early retirement before the age of 62. So far, there were many exceptions in the Greek system that sometimes even permitted retirement at age 50. Plans are intended to increase the general retirement age and relieve some of the burden on pension funds.

Collective Bargaining

Before the crisis, the majority of wage agreements were negotiated collectively by unions for all of their members. At the request of creditors, the former troika determined that wage agreements could only be negotiated at the company level. Syriza wants to reverse the decision. But in EU circles, the response is: “It is not going to work that way.”

Minimum wage

Raising the minimum wage to the level it was in 2010 was one of the main promises made by the left-wing alliance Syriza ahead of the election. In its proposal, the government speaks of a “gradual increase until 2016”.

Privatisations

By 2020, the Greek government wants to gain around €11 billion through privatisations and land development. Here, the government pledges to pay particular attention to nature conservation, labour rights and strengthening local communities.

Independent tax authority

In the future, an independent tax authority is intended to make tax administration more efficient.

Moratorium on foreclosures

The Greek government intends to suspend foreclosures on debtors if it is the first and only residence, the value of the housing does not exceed €200,000, the declared income of the family is not higher than €35,000, and savings are not over €15,000.

Background

On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2 billion in unused EU structural funds to Greece.

>> Read: Greece promises to deliver full reform list after three-hour 'mini summit'

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

>> Read: Eurozone approves Greek reform plan with reservations

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the Troika of EU, ECB and IMF inspectors, which are now called "the institutions".

>> Read: Greece, eurozone agree to four-month loan extension, avert crunch

Further Reading

Tagesspiegel: The list of reforms from Alexis Tsipras (PDF download)