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Creditors increase their pressure on Greece

29 November 2014 / 18:11:59  GRReporter
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Pinned by its recent ultimatum, the Greek government is amidst tough negotiations with the Troika. The atmosphere is incandescent, and this became evident from the lack of statements after the meeting between Prime Minister Antonis Samaras and Deputy Prime Minister Evangelos Venizelos, in the presence of the Minister of Finance Gikas Hardouvelis. The creditors have demanded a hike of the low VAT rates, changes in the social insurance system as well as addressing the 100 instalments on short-term liabilities to social insurance companies and the tax office.

The government's proposals had to be forwarded immediately if the Troika team members were to come back to Athens on Monday.

The creditors' representatives have been insisting for a while for the introduction of income and property criteria for those who fall into the 100-tranche regime for the repayment of outstanding tax and insurance liabilities to the state. There is also a demand to reduce the number of instalments.

The government’s economic team anticipates that the measure will lead to further revenues as today is the deadline for paying the first instalment. Meanwhile, requests from citizens wishing to be listed for the 100-tranche repayment scheme have been growing. Judging by what Venizelos said after the meeting, it becomes clear that the coalition members have agreed that this policy may only be amended next year as this year's deadline has already expired.

As far as the social insurance system is concerned, the Troika demands the slashing of all pensions of retired persons under the age of 62, and the increasing of the working life people need to get the minimum retirement benefit from 15 up to 20 or 21 years. The Troika also insists on changing the way retirement benefits are calculated, which practically implies a 15-20% reduction of basic pensions as well as a freeze on all pensions until 31 December 2017. More stringent requirements for those receiving social pensions is another Troika demand.

However, the government will accept neither pension reductions nor amendments to the short-term obligations. As far as raising the VAT is concerned, the government grudgingly accepts this only for certain categories of goods or services. Currently medicines, hotel accommodations, theatre performances, books, newspapers and magazines are only levied with 6% VAT. The government has been deliberating raising VAT to 8% for larger hotels, books, newspapers and magazines, but has refused to budge on the VAT on medicines.

It is quite telling that even Pierre Moscovici, the finance commissioner most lenient on Greece, has insisted the country should undertake all measures allowing the Troika's return to Athens; he admits that the 8th of December is already unattainable as a deadline.

Meanwhile, the President of the Union of Hellenic Chambers of Commerce and Industry Konstantinos Michalos said that a VAT increase will not invigorate public revenues because companies and citizens have exhausted their ability to pay taxes. Quite the contrary, it will trigger a wave of price increases across goods and services, and thus cripple the competitiveness of Greek economy in key sectors like tourism, pharmaceuticals and culture. Michalos urged the government to resist these Troika proposals and seek the balance elsewhere. He believes this is yet another unreasonable Troika demand.

Tags: Troika government negotiations increasing VAT increase of retirement age
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