Creditors’ latest demand for a “contingency package” worth 3.6 billion euros in case Athens fails to meet primary budget surplus targets through 2018 will reportedly be comprised of projected tax hikes, new taxes and spending cuts, as the leftist government’s top economic team mostly fought a “rear guard” and ultimately losing battle at Friday’s Eurogroup meeting to avoid the additional burden.
Initial smiles by the Greek side last week over a Eurostat announcement of an above-target 0.7-percent primary budget surplus figure for 2015, as a percentage of GDP, failed to allay creditors’ demand for the contingency measures. The development essentially means that the IMF’s skeptical view of Greek state finances over the next three years was adopted by European creditors in the end.
The new “contingency memorandum” will include measures equaling 2 percent of Greek GDP, calculated today at 3.6 billion euros, on top of a package of 5.4 billion euros already mostly approved by lenders.
According to reports from Amsterdam, the SYRIZA government’s efforts to allay Eurozone members’ concerns proved fruitless, with EZ member-states’ finance ministers officially signing off on a “fail clause”, or “contingency package”.
A subsequent firestorm of criticism over the government’s handling of the latest round of negotiations erupted mostly on social media and the Internet, given that a strike was ordered by a journalists' union in Greece at the very moment crucial draft bills were submitted to Parliament.
Keen to reduce political fallout for the battered Tsipras government, Eurogroup chairman Jeroen Dijsselbloem dismissed criticism that the decision was essentially a “fourth memorandum”.
The development again generated closed-door meetings by top ministry officials in Athens to come up with projected measures to meet the 3.6-billion-euro figure, with reports pointing to spending cuts – as opposed to more taxes – holding an “advantage” in the contingency package.
Sources said the government is studying the prospect of “sudden death” scenarios for obscure or unproductive state bureaus and agencies to cut costs if primary budget surplus targets are not met.
Another area for possible cuts is public sector wages, especially at the entry level, for low skill categories and so-called “special wage categories”, where lenders have detected distortions.
Other possible measures in a contingency package include a public sector hiring freeze; cuts in primary pensions; slapping the high VAT rate of 24 percent (which was just increased from 23 percent) on utility bills; abolition of the low VAT rate and even a 0.1 to 0.2 percent fee on bank transactions.
The last measure could bring in 300 to 600 million euros in annual revenues, although adding to the already aggravated state of retail banking in the country.
Another measure that creditors wanted in the intial package was an expansion of the tax base downwards, with the government finally relenting to a 9,090-euro tax-free ceiling, down from 9,545 euros in annual income. Nevertheless, creditors are expected to renew pressure in contingency package talks for an even lower ceiling, with 8,128 being the figure cited.
Regardless of the outcome, the latest round of austerity measures in recession-battered Greece do not point in the direction of an economic turnaround, as the Hellenic Federation of Enterprises noted in its weekly bulletin on the Greek economy last week.
The risks for the Greek economy now emanating from the “twin packages” of tax hikes, pension cuts and possible general government spending decreases are reduced liquidity in the market, a further reduction in incomes and accompanying consumption, increased debts to the tax bureau – already at 90 billion euros in Q1 2016 – more “incentives” for tax evasion and the closing of even more businesses, with the accompanying pain of even greater unemployment.
