Syriza’s capitulation to please Greek creditors

Greek PM Alexis Tsipras decided to cross his own Rubicon on economic reforms, regardless of  the internal consequences for his government in the short and medium term. The last document presented to the Eurogroup and later to Euro-country leaders included an important VAT hike and not focus on products.

 

A source close to Tsipras confirmed the goverment plans to abolish the 30% VAT exemption for goods and services provided by or to taxpayers on the Greek islands. Although that special regime is considered a cornerstone of the national tourist industry, eliminating it is how Athens expects to collect €700 millions in tax this year and almost €1.4 billion the following one.

 

It will be really difficult for Syriza to sell the tax measure to its current goverment partners, Independent Greeks.

 

“Although the three-tier VAT system still remains, there are rises in VAT and these have to be negotiated within goverment,” another Greek official pointed out in a private conversation during the evening negotiations.

 

The official explained that Independent Greeks, a right wing party, had spoken out strongly against austerity policies. Increasing social contributions for main pensions by 3.9% will be another disappointing recessionary measure for the 13 Independent Greeks MPs. The burden will fall mainly on employers’  budgets to achieve  €800 millions of extra savings.

 

After coming to Brussels with this economic package, Tsipras would have expected some signs of relief from creditors.  He held a bilateral meeting with ECB President Mario Draghi to ask for a rise on the T-Bill ceiling, currently at €15 billion. This measure would provide the necessary liquidity for IMF repayments on 30^th June as Greek banks could buy more short-term bonds.

 

But no deal on this front yet, nor any debt restructuring.

 

So many losses in just one day for a single victory, namely the likelihood of  a 6-month extension of  the current programme being agreed next Thursday.  Really?

 

“If there is an agreement, it has to be an extension, because there is no possibility of  a disbursement being made in the next few days due to technical and political procedures,” an ECB official acknowledged on the sidelines of the Summit.

 

The official confirmed there will be a new ECB teleconference today to discuss further rises in the Emergency Liquidity Assistance (ELA) for the Greek banking system, as well as daily meetings to assess the situation until a solution emerges.

 

That could happen between Wednesday’s Eurogroup meeting and Thursday’s EU Summit after the new Greek “comprehensive” proposals.

 

In the meantime, the much blamed ECB has avoided the country’s financial meltdown after raising the ELA ceiling on Monday for the third time in six days.