Two Greek ministers on Friday spoke of the possibility of holding elections should talks with creditors fail, in an indication of mounting frustrations.
“If they don’t go back on this package [of austerity measures], neither will the government go back, so objectively it must ask for another way out, i.e. elections,” Social Welfare Minister Dimitris Stratoulis told Antenna television.
“Elections are quite a likely scenario if we find ourselves in circumstances that force us to address the people,” Labor Minister Panos Skourletis told Parapolitika radio. He said the aim would be “to broaden the limits of our mandate and acquire a greater freedom of movement.”
Talks have crashed through two deadlines: April 30 and May 31. The ultimate deadline is June 30, when Greece’s emergency funding program ends.
The government on Friday unveiled details of its proposal for a new deal with its creditors, the European Commission, European Central Bank and International Monetary Fund.
It also revealed details of its creditors’ counter-proposal, which it said reverts back to the starting point of negotiations four months ago. “The Greek government’s proposal does not reflect its original position, as expressed in election promises, but is the product of retreats and compromises,” the government said.
“It turns out these people don’t recognize that it was their memorandum [of austerity measures] that flattened the economy,” said Stratoulis.
The big issue: rate of debt repayment
The Greek document reveals that there has been some convergence on the big issue of debt repayment. Greece suggests spending 9 billion euros ($9.9 billion) over the next three years (at today’s GDP), while creditors want 10.8 billion euros ($12 billion). Still, that’s a far cry from the 21.6 billion demanded in the program as it stands.
The Greek side wants more of a respite now, in order to rebuild growth and create jobs first, which was a central election pledge.
The two sides disagree greatly on consumer tax, or VAT. Greece wants VAT on electricity bills to go down two points to 11 percent, and medicines to go down half a point to 6 percent. Creditors demand 11 percent for medicine and 23 percent –- a 10 point hike — for electricity.
The Greeks say that creditors’ demands would raise 1.8 billion euros ($2 billion) more a year from VAT, or 1 percent of GDP. Since consumer tax is applied indiscriminately, it disadvantages the poor, and Syriza has vowed to rebalance tax revenues to relieve them. Its first act of parliament after taking power on Jan. 25, was to spend 200 million euros (this year helping to provide food, shelter and electricity for poor households).
Studies suggest that one third of Greeks are currently living below the poverty threshold of 7,756 euros ($8,608) a year.
Perhaps the greatest disagreements come on pensions. Creditors want all Greeks to retire at 67, given that the population is ageing, and they want pensions to fall by one percent of GDP a year.
This is because pension funds cannot cover their costs, and the government spends 1.5 billion euros ($1.7 billion) a month underwriting them. Of the 29 billion euros ($32 billion) that pensions will cost this year, the government will pay 16 billion euros ($18 billion) –- just over half. By comparison, in 2000 it paid only 20 percent of pension costs. The outlook is that as more people retire, (a quarter of the population is already retired), state expenditure will increase.
Creditors propose cutting pension top-ups (EKAS) to low-earning retirees. The government protests that this would reduce their monthly income from 488 euros to 200. It also points out that the top-up fund is one to which only pensioners have contributed, and the government is therefore not entitled to take it away.
The second major change creditors want is to phase out auxiliary pensions by next year. This would reduce the average pension (which now stands at 800 euros) by roughly one third. Austerity governments had agreed to the measure. The implication is that Greeks would invest in a private auxiliary retirement plan, or IRA. But Syriza is against this; it is ideologically committed to a comprehensive, redistributive retirement system that is guaranteed by the state.
“They wouldn’t dare suggest such things in their own countries, because they wouldn’t be able to find a plane to fly out on,” said Stratoulis. “They are treating us like a colony.”
Syriza promised voters in January to effect no further cuts, at least for now.
It has instead suggested isolating revenue streams that would flow directly into pension funds, making them independent and effectively insulating the national budget from surges in pension costs.
Syriza says it has also agreed to effectively stop early retirement, and to consolidate the country’s 13 main pension funds. This would streamline costs but also benefits paid out, potentially lowering them to the highest-paid retirees.
The big tax scuffle is over whether to abolish a highly unpopular property ownership tax, ENFIA, levied as an emergency measure in 2011 but made permanent in 2013. A recent study found that it increased the total tax Greeks pay on property by more than a thousand percent during the crisis.
Syriza vowed to abolish it, but it also vowed to preserve balanced budgets. The two promises aren’t currently compatible, because ENFIA brings in 2.65bn euros a year, which Syriza cannot replace.
Before the January election, Syriza thought it would find 3 billion euros a year by aggressively pursuing tax evasion. A bill to crack down on fuel smuggling, online gaming and overseas transactions through tax havens has been delayed, perhaps pending ongoing talks.
Syriza also counted on collecting another 3 billion euros a year by bringing in tens of billions in tax arrears. A careful audit, however, has since revealed that only 9 billion euros are immediately collectible, since most of the arrears are owed by bankrupt entities and state entities, or are caught up in litigation. While Syriza has helped 300,000 people settle 2 billion of their arrears through an installment plan, it is nowhere near generating an extra 3 billion this year.
Syriza has agreed to a slew of reforms in the tax administration. This includes a more independent and empowered General Secretariat for Public Revenue, which would in theory be isolated from political pressures, a new tax code, a budget law curtailing overspending, and a Fiscal Council to advise the government on long-term planning. Laudable as they are, though, these measures will take years to affect revenues.
Austerity governments managed to trim the public wage bill to 620,000 people, from an estimated 950,000, by the time Syriza came to power. Syriza is against further layoffs, labeling it a recessionary measure. Moreover, it is pushing to rehire, something the government can ill-afford. Moreover, it is vehemently against further salary cuts in the state, saying this is another recessionary measure.
In a letter to the Financial Times on Friday, Joseph Stiglitz, Thomas Piketty and two dozen other academics pleaded for sanity and humanity.
“It is wrong to ask Greece to commit itself to an old program that has demonstrably failed, been rejected by Greek voters, and which large numbers of economists (including ourselves) believe was misguided from the start,” the letter said.
It also warned of ominous political developments should Syriza fail. “Syriza is the only hope for legitimacy in Greece. Failure to reach a compromise would undermine democracy and result in much more radical and dysfunctional challenges, fundamentally hostile to the EU.”
John Psaropoulos is a freelance reporter who writes the blog The New Athenian. This is a crosspost, and you can view the original blog here.