On Sunday Greek MPs approved a multi-bill containing a wide range of measures, including 1.8 billion euros in tax hikes and the framework for a new privatisation fund. The brutal new austerity measures will almost certainly unlock more Eurogroup loans to Athens, but it will come at a very heavy price to Greek sovereignty and dignity.
The WSJ explains the bill further in a piece entitled, Greece Set for Austerity Vote to Secure Bailout Cash.
The bill includes the last portion of an austerity package worth €5.4 billion ($6.06 billion), or 3% of the country’s gross domestic product, which Greece has agreed on with its international creditors to implement by 2018 in exchange for fresh bailout funds under the terms of its third bailout deal.
The IMF has said it would only sign up to the Greek bailout if Germany agrees to debt relief. But German officials are seeking to delay any debt restructuring until the end of the current Greek bailout program in 2018, so that Germany’s parliament, the Bundestag, would pass such measures only after Germany’s 2017 elections.
To meet its targets, Athens was asked to set up a “contingency mechanism” of additional austerity measures worth some 2% of GDP.
The measures being voted on Sunday include new taxes on fuel, tobacco, alcohol, Internet, pay TV, hotel stays, cars, changes in property tax, as well as a rise in the basic value-added tax rate, applied to most goods and services, from 23% to 24%.
The Greek parliament is also expected to vote on the fiscal brake mechanism that would automatically cut state spending if Greece misses its budget targets.
How much the next bailout tranche would be is still to be determined, but European Union officials indicate it could be €10 billion.
Eurozone finance ministers will meet in Brussels today to decide whether Greece has done enough to complete the first review of its latest bailout program.
If given the green light, Athens will receive a minimum of 5.7 billion euros in bailout funds. Questions still remains regarding whether the eurozone creditors and the IMF will find common ground on how to reduce Greece’s debt or if this will be another clumsy stumbling block in what has become a never ending Greek tragedy.
Meanwhile in Athens’ parliament, Syriza and its coalition partners we embroiled in two days of debate with opposition parties.
Tsipras rejected the idea that the government will not last much longer after New Democracy MP Dimitris Stamatis suggested that there would be snap elections in spring next year. The prime minister insisted that the coalition will see out its full four-year term and that elections would take place in September 2019.
The prime minister criticized the opposition for not supporting the measures in the multi-bill despite earlier suggestions that New Democracy, at least, would vote for the provisions regarding the privatization fund and the sale of NPLs.
“What we are voting on is completely within the framework of the [bailout] deal we agreed [with Greece’s lenders] last August,” said Tsipras.
Earlier, Mitsotakis had accused the government of ceding Greece’s sovereignty by giving the country’s creditors a key say in the privatizations that will take place, not setting a limit on the sales and giving the new fund a lifespan of 99 years.
“Today is a day of shame for the Greek Parliament,” said the conservative leader in relation to the fund.
Mitsotakis also outlined his proposal for the economy, saying he would ask the institutions to lower the mid-term fiscal target to 2 percent of gross domestic product and would aim to fuel business activity through a series of tax hikes that would create growth of 4 percent of GDP.
As things are progressing it seems highly unlikely that Tsipras will last much longer. Greece remains in an economic depression with a few blips of growth that go unnoticed by a populations plagued with record 26% unemployment rates and living conditions unbecoming of a “European” member state.
MishTalk – Mish’s Global Economic Trend Analysis delves deeper into Greece’s never ending misery…
Hiking taxes in a depression is one of the stupidest things one can do, but Greece is set for another vote to do just that.
Prime ministeris once again prepared to kiss German Chancellor Angela Merkel’s behind, and his party will likely go along for the ride.
The wildcard IMF has yet to chime in on the economic stupidity of this hike.
On May 14, I reported Greece “Demands” Debt Relief, Owes Troika €11+ Billion by July.
My comment: “Greece has caved in every time, and in the most humiliating ways. Greece even caved in on pension cuts last week. Why should anyone believe Greek demands now?”
€10 billion would be a lot of money, if the money went to Greece. But virtually none of it will go to Greece.
Greece Short-Term Debt Timeline
Somehow I expect the next tranche to be a “greater than expected” €11 billion. Perhaps €10 billion will suffice if Greece has €1 billion of its own to pony up.
Greece Long-Term Debt Timeline
Payments to the Troika stretch all the way to 2059, while assuming Greece can maintain a primary account surplus of 3.5% the entire way.
The IMF says this is impossible, while proposing a surplus of 1.5%, also impossible.
The IMF wants debt relief now, but Germany wants the IMF to hold off until Merkel wins reelection.
Meanwhile, the Greek depression resumes.