13th Aug 2022

New Greek proposal gets mixed reactions

  • Greek man reading headlines at Athens kiosk (Photo: Spyros Papaspyropoulos)

The Greek government sent a new proposal to its creditors Tuesday (9 June) but a quick agreement to unblock a €7.2 billion loan remains uncertain.

"An agreement within the coming days is possible," EU commission vice-president Valdis Dombrovskis said on Tuesday but added this will only happen if there is "political will first and foremost on the Greek side, less tactical manoeuvering and more substance".

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Noting that divergences remained, especially on pensions cuts and the level of VAT, Dombrovskis said that "there is a possibility to replace some measures with fiscally equivalent measures".

"This is what we are indicating to the Greek authorities."

Earlier in the day, Eurogroup president Jeroen Dijsselbloem was less positive, saying that differences remained between Greece and its creditors on what has to happen at the end of June, when the current bailout programme ends.

"I've heard a lot of optimism from the Greek side, and it's an underestimation of the complexity of what's being asked of them," he told Dutch TV RTL Nieuws, adding it was "unthinkable" for him that an agreement coud be found without Greece reforming its pension system.

The Greek proposal is "is not enough" but "we are a little bit closer", an EU source told EUobserver, there was a lot of talks and discussions between leaders.

No detail was officially given about the document but officials said it contains proposals on pensions, VAT and budgetary primary surplus, three of the long running sticking points in the negotiations.

Agreement on primary surplus is close, both Greek prime minister Alexis Tsipras and commissioner Dombrovskis said.

But the Greek document also includes controversial demands on debt relief.

According to the plan, the European Stability Mechanism, the Eurozone's emergency fund, would channel money to Athens in order to repay ECB loans.

The ECB owns €17 billion of the Greek debt, including more than €6 billion due to be repaid in July and August.

This solution amounts to a new, if limited, bailout for Greece.

In a previous proposal last week, the Greek government had also floated the idea of a restructuration of its debt to the ECB and IMF.

On the debt issue, "an agreement between the institutions would be necessary, and then it would be up the Eurogroup to decide," the EU source told this website.

Greece's creditors have refused so far to discuss debt restructuring, saying the sustainability of the Greek debt was a matter to be addressed only after an agreement on reforms was reached.

A first indication of Greece's creditors' reaction could come on Wednesday when Greek prime minister Alexis Tsipras is due to meet Germany's Angela Merkel and France's Francois Hollande on the margins of an EU-Latin America summit.

"The ESM is mainly Germany and France," another source told EUobserver, saying the two main contributors to the fund would set the tone on the issue.

In an interview with Italy's Corriere della Sera, Tsipras said an agreement was close, if "the IMF, ECB and EC relax[ed] their demands on pension reforms, and other proposals which would push Greece deeper into recession".

A failure to find an agreement would be "the beginning of the end of the eurozone", Tsipras said.

"What would the reaction of the markets be to countries facing much larger problems, such as Spain or Italy which has €2tn of public debt?," he asked.

The current bailout programme runs out at the end of June and there is speculation that it could be extended.

A three to nine-month extension of the programme "is an verbal hypothesis that has been floated for months," one of the sources told this website.

This would allow more time to disburse the money once an agreement is reached and have further discussions about Greece's long term prospects.

But an extension of the programme would also have to get through several national parliaments, including in Germany, Slovakia or Finland, where it would face strong opposition.

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The IMF has withdrawn its negotiation team form the Greek bailout talks over "major differences in most key areas".

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