Greece has requested a loan of €53.5 billion from the European Stability Mechanism that will cover the period from now till the end of June 2018. From the €53.5 billion, €46 Billion will be used for the repayment of bonds held by European Central Bank and the loans given by the IMF. While €7.5 billion euro will be returned to the public institutions as repayment for the money taken from their funds.
The Greek proposal has small differences from the last proposal by EC President Jean-Claude Juncker that was made to the Greek government on June 26.
On taxes, the program mostly aligns with the last Juncker proposal. A difference exists in the special VAT status on the islands. The Greeks propose the abolition of the special VAT status in tourist-focused islands instead of full abolition on all islands. Any new VAT rate will be applied on hotels and the islands from October.
On the much-sensitive topic of pensions, the proposal has two variations from the Juncker proposal, with the solidarity grant being phased out on lower pensions, which is to start from March 2016 instead of immediately, and a postponement of the clause to eliminate the deficit in the pension fund to October.
In case that the new measures do not raise the expected revenue, additional measures worth €330 million will be enacted. Of which €200 million will come from an increase in tax on rent income and the rest from higher taxes on businesses.
The proposal specifies targets for primary surplus of 1% in 2015, 2% 2016, 3% in 2017 and 3.5% in 2018. However it states that the targets for 2015-2017 will be negotiated to accommodate for the current status of the Greek economy.
The Greek government will expect talks with the aim of ‘reforming and restructuring long-term debt, after 2022, to make it sustainable and serviceable’. German finance minister Wolfang Schauble agreed with the IMF for the need of a Greek debt relief but stated it infringes EU’s system. He did however say that Greek debt could have its interest rates shaved and repayment schedule extended. His position is consistent with Chancellor Merkel’s statement where she ruled out a classic haircut on Greece’s debt. President of the EU Council Donald Tusk has also said that a realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. An EU official told reporters that Greece’s debt and whether relief is needed will be discussed at Saturday’s Eurogroup.
France has seen the Greek proposal in a positive light with Hollande calling the proposal, ‘serious and credible’. On the German side, the proposal was seen with more skepticism with a senior member of Merkel’s party saying that he had trouble trusting Greece’s latest proposal.
On Friday evening, the Troika will release its assessment of the Greek proposal. A Greek parliament vote on the proposal will take place on early Saturday morning in order to authorize the government to negotiate a final deal with the Eurogroup. If the Troika assessment is positive, then on Saturday’s Eurogroup the finance ministers will recommend the opening of negotiations with Greece. On Sunday, the EU summit will meet to verify that the Greek proposal is a basis for negotiations and to release some bridging funds to finance Greece for the coming days. A possible Greek deal will also have to be agreed by the parliaments of Germany, Austria, Netherlands, Estonia, Slovakia and Finland on Monday and Tuesday.
The euro started the day positively on renewed expectations of a deal following the submission of the new proposal by Greece late on Thursday. The single currency climbed steadily during the day, rising to 1.1185 against the dollar in afternoon European trading. It was more volatile against the pound coming off highs from 0.7222 to fall to around 0.7197. Against the yen, the euro rallied to 136.84.
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