Another day passed by in suspense yesterday without any deal between Greece and its creditors. The discussions on staff level obviously did not result in any breakthrough although the two sides seemed quite close as regards the technical details. The Eurogroup finance ministers decided to reconvene on Saturday for a final attempt to bridge the gap before Greece risks defaulting on its debt payment on next Tuesday.
After that any deal must be subject to a vote in the Greek parliament and some other Eurogroup members’ parliaments. Can that be done “in a matter of days” or would the expiry date of the bailout program need to be extended?
The Greek proposals and the counter-proposals of the creditors have been leaked to the press. The Greek daily Kathimerini published last Tuesday the full proposal submitted by the Greek government. Afterwards an incomplete document, with a list of the Greek proposals including track changes and comments by staff at the creditors’ institutions, was leaked. Finally a complete and clean version of the creditors’ counterproposals was leaked.
We need therefore to update our first comments on the proposals. The full Greek document is not only a table or list of reform measures without any explanations. It does include a cover letter by Prime Minister Alexis Tsipras to the European Commission President Jean-Claude Juncker. The letter lists three types of measures – fiscal, “parametric, and administrative – that together are expected to result in a substantial increase in public revenues already in 2015.
The list itself does include explanations under the different headlines, as e.g. on the need of “tackling the social crisis and strengthening fairness across society”, something that may not be the biggest concern of the creditors. What is important from their point of view is the size of the primary budget surplus in Greece and here the Greek government states that its new fiscal pact is premised on a gradually increasing surplus target, starting with 1 % of GDP already during 2015.
A separate set of measures are intended to reform the tax administration. An independent tax and customs agency still remains to be established – deadline for this is end June 2016. An important measure in the context is to immediate start “imposing and collecting taxes owed on undisclosed assets” abroad and this will require cooperation with the tax authorities in the countries where those amounts are deposited by Greek citizens.
Some measures address the need to reform the labor market to achieve “EU best practices” and to open up product markets with the help of expertise from OSCE and the World Bank. Privatization of functions and assets in the public sector will continue.
Anti-corruption has received a separate heading in the proposal. Here the Greek government is quite brief and states that the authorities will “review and present a new strategic plan against corruption”. In fact, such a plan already exists and was drafted a few years ago with the support of the Commission’s Task Force for Greece. What is needed are not new strategies but implementation on the ground of already decided measures.
Overall, judging from the leaked comments of the creditors, the gap between the two parties is quite close and mostly concern technical details. In certain areas, e.g. labor and product markets, the creditors are fleshing out the Greek proposals which lacked specification.
A sentence in the counterproposal states that there should not be any changes to the current collective bargain framework before the end of this year, no explanation given. As regards the application of different VAT rates and the timing of the reform of the pension system there still seem to be substantial difference of opinions.
Noteworthy is that the creditors have added a proposal under “fiscal structural measures” to “increase the rate of the tonnage tax and phase out the special treatment of the shipping industry”, however without any specification of what exactly needs to be done and when. This is inconsistent with the creditor’s approach to require the Greeks to become specific on their reform proposals.
Last but not least, it should also be mentioned that the creditors wants to reform the Hellenic Court of Audit, the supreme audit institution (SAI) in the country. It should “phase out ex-ante audits and the work of account officers.” This is a long over-due measure. Hardly any SAI in EU works in this outdated way any longer. However, the counterproposal fails in not proposing that instead the Greek SAI should embark on performance auditing.