Late on Thursday, the Greek government submitted its long-awaited economic reform proposal to go along with Wednesday’s request for a new three-year bailout programme.
The package sent to creditors included three documents: first is a letter from Alexis Tsipras, the Greek prime minister, which we’ve posted here; second it a more detailed letter from Euclid Tsakalotos (here), the new finance minister; and the third is what’s called the “prior actions” – a 13-page plan of reform measures that must be completed prior to winning bailout aid (here).
We will more completely gut these documents in the morning, but a few things that stand out. First, none of the documents mentions debt relief. This was a major demand of Yanis Varoufakis, Tsakalotos’ predecessor. And while it is obliquely mentioned in Wednesday’s bailout request, there’s nothing in the documents sent to Brussels Thursday night that mentions the topic.
Instead, what is interesting about both the Tsipras and Tsakalotos letters is their explicit mention of wanting to remain in the EU’s common currency. As Tsipras puts it:
With this proposal, the Greek people and the Greek government confirm their commitment to fulfilling reforms that will ensure Greece remains a member of the Eurozone and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda – starting with immediate actions – as well as to engaging [sic] constructively on the basis of this agenda, in the negotiations for the ESM loan.
Tsakalotos puts it with a bit more flourish:
[The proposal is] a vision which serves our commitment to remain an integral member of the eurozone and respect the evolving rules of our monetary union; one that underpins that commitment with a comprehensive set of reforms and measures to be implemented in the areas of fiscal sustainability, financial stability, long-term economic growth and sustainable development, and, last but not least, reforming the public administration….
On substance, the new “prior actions” come very close to creditors’ last “prior actions” proposal, which Greek voters overwhelmingly rejected in a referendum at the weekend. It maintains a primary budget surplus target (revenues minus expenses when debt interest payments are not included) of 3.5 per cent by 2018, though it remains a bit more vague about how fast it will get to that level. The previous progression – 1 per cent this year, 2 per cent next and 3 per cent in 2017 – remains in the proposal, but tellingly in parentheses.
On the two areas that proved most divisive before negotiations were cut off two weeks ago, overhauling the value-added tax system and pension reform, there is also a lot of convergence.
In the VAT system, Athens vows – as the creditors demanded – to find new revenues amounting to 1 per cent of gross domestic product (about €1.8bn) every year. It also concedes to a creditor demand to allow processed foods to be taxed at the standard 23 per cent rate.
The Greek proposal also incorporates one of the creditors last concessions – moving hotels to a lower 13 per cent VAT bracket – but it appears to hold out on one thing that could prove problematic: a separate, lower-rate system for Greek islands.
Creditors have demanded a single system for the whole country, arguing that a separate rate for the islands – which Athens has insisted on because many are remote and expensive to supply – requires a completely separate administrative system, raising expenses needlessly.
The new Greek proposal agrees to “eliminate discounts on the islands”, and offers to start with the bigger islands that are popular tourist attractions. But it also says the discounts will not be ended “for the most remote ones”, which may defeat the purpose of a single nationwide system.
On pension reforms, there are still a handful of gaps. The 2012 pension reform legislation will not be implemented until October 2015 under the Greek plan, whereas the creditors wanted it done immediately.
But on the big things – implementing measures to raise the effective retirement age to 67 by 2022 and phasing out a “solidarity grant” to poorer pensioners by December 2019 – Athens appears to have conceded.
The problem with this assessment, of course, is it measures a new proposal against an offer made for a bailout that does not exist any more. Angela Merkel, the German chancellor, has made clear that what’s required under a new multiyear bailout – which could cost more than €70bn – is much different than a reform plan needed to release just one €7.2bn aid tranche. More needs to be done, she argued.
So can this new plan live up to Merkel’s new, tougher expectations? It is now in the hands of Greece’s trio of bailout monitors – the European Commission, European Central Bank and International Monetary Fund – to determine.