Greek Prime Minister Alexis Tsipras, has offered new concessions to creditors in pensions and increases in VAT, two of their red lines he had still to yield on to achieve an agreement that would unblock the next financial rescue of the banks and avoid default.
Specifically, the Government of Syriza accepts delaying the retirement age to 67 years and to penalize early retirement. It also increases social contributions, as contained in the latest proposal submitted to the troika.
In regards to the VAT, Greece undertakes the task to apply it to most products at the general rate of 23%. The reduced rate of 13% will be limited only to energy, basic food and hotels, while there will be a reduced rate of 6% for medical supplies and books.
In all, Athens is expected to generate an additional income of 0.38% of GDP this year and 0.74% of GDP in 2016 with the increase in VAT and 0.37% and 1.05%, respectively, with the new conditions in the pension system.
In addition, Tsipras proposes increasing corporate tax from 26% to 29%, apply an extra fee of 12% to higher corporate profits of up to half a million euros, slightly trim the defense budget next year and increase the luxury tax including private yachts.
Overall, Greece’s latest offer would generate additional revenues topping 1.51% of GDP this year and 2.87% of GDP in 2016.
The Greek delegation maintains that these measures are sufficient to meet the new targets of primary surplus discounting interests-which were set by the troika: 1% of GDP in 2015, 2% in 2016 and 3% in 2017.
The package includes tough measures that will find rejection at home, especially the increase in all contributions to Social Security.
Tsipras also accepted the most controversial measure of all: gradually eliminating allowances for pensioners, a measure that will start in 2018, and replace it for pensions in 2020, as well as increase from 4% to 5% the contributions of pensioners to the health system.
Another change appreciated by European partners is the calendar. Tsipras proposed to implement its proposals before the January 1, 2016 but now, after pressure from creditors he agreed to do so “immediately”.
Tsipras accepted the fiscal targets set by creditors: 1% of primary surplus, excluding interests, in 2015, 2% next year, 3% in 2017 and 3.5% in 2018, as proposed in the 11 pages document send to Brussels by his administration.
“The Greek government’s response to the requirements of institutions for fiscal targets is absolute and complete,” according to the document signed by Tsipras himself on its front page. “The measures included exceed the targets set by the troika”.
After approved, the new measures will mean an increase in revenue of 1.5% of GDP this year and 2.9% in 2016. The Eurogroup has advanced that Greece’s offer has been “well received” and is “a good negotiating start” to achieve a political agreement at the summit tonight and a definitive agreement later this week.
Pending any ore demands from Brussels in the last few hours of negotiations, it seems that Greece will stay in the Euro and that its people will continue to be slaves to Brussels and its austerity measures for at least 3 or 4 more years. It also seems that after a lot of noise during his political campaign, Tsipras has much less of a spine to resist the pressure from the Troika.