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Creditors’ absurd austerity demands to promote Social Darwinism in Greece

It was a shock late last night when some of creditors austerity demands were leaked to the press. They were included in a 5-page draft plan European Commission President Jean-Claude Juncker had handed out to Prime Minister Alexis Tsipras during their emergency meeting in Brussels in an effort to strike a deal between the two sides. It looked that self-proclaimed friend of Greece Juncker had bend to Germany’s and IMF’s concept of continuation of strict austerity with the same tough austerity measures they were demanding also in 2014 from the previous government. A proposals draft demanding measures worth 3 billion euro alone for the rest of 2015 is something that no government can accept after 5 years of strict austerity. Creditors demanded measures 2.5 billion euro from Nea Dimokratia-PASOK government, the government had offered something below one billion euro, the negotiations failed in November 2014.

Below I have a list of creditors’ absurd demands with explanation and comments on their impact.

Two of the shocking measures the Institutions demands are:

• Exorbitant Value Added Tax hikes 11% for drugs (6.5% currently) and 23% to electricity (13% currently).

• Scrapping the welfare benefit for the very low-income pensioners and disabled people (EKAS)

A hike in electricity will consequently lead to price hikes in all products.

A hike in drugs will dramatically increase pressure on the  in a country where many people stopped their medicine after the increase of participation in prescription medicine in 2012.

But the creditors, especially the IMF, consider that the V.A.T. in these two categories of essential goods is a guaranteed source for revenues as both pharmacies and Public Power Company (DEH) issue receipts and cannot “cheat” on VAT.

As for the welfare benefit for the low-income pensioners and disabled, I think to remember that it was already on Creditors list in previous years. the total spending on EKAS is estimated some 100 million euro per year.

Furthermore, the creditors demand:

• Cuts in main and supplementary pensions worth €1.8 billion and thus as soon as of next month, July 2015.

The WSJ writes: “reduce pension spending as of July, delivering savings of 0.25% to 0.5% of gross domestic product this year and 1% of GDP next year.”

In real money this would be: a total reduction of €2.6 billion euro for 2015 and 2016 or additional -8.8% in comparison with 2014.

Α reduction in pensions horizontally and indiscriminately and independently of whether a pensioner had worked full 40 years or is in early retirement with 15 or 25 years of work.

• Scrapping early retirement as soon as possible.

This measure will hit especially people with disabilities and older unemployed in a country where 1:4 is long-time jobless.

• Scrapping the 30% reduction of extra tax, the so-called “solidarity tax”, a reduction imposed by the previous ND-PASOK government last year.

Households with annual income 12,000 – 50,000 euro will have to pay 2% from 1.4% (currently) and for income 50,000-100,000 euro to pay 4% from 2.2% currently.

Other measures are:

• Privatizations in Public Power Company and regional airports

• No mass lay-offs in public administration but the Greek government should not scrap previous austerity measures referring to labor market issues like raising the minimal wage, and collective bargain.

With regards to the Primary Surplus, that is what is left from other expenses to fund its debt, creditors offer:

1% for 2015

2% for 2016

3% for 2017

3.5% for 2018

Creditors’ draft most probably contains also other “cute stuff” however without any provision for growth or debt write off.

A meaningless proposal for a country suffering from recession for the last 5 years,a pointless draft that will have Greeks keep bleeding, an absurdity per se that will make it impossible for Greece to pay back its debt.

A ridiculous proposal after 4 months of negotiations that the Greek government cannot accept especially with regards to cuts to pensions and welfare benefit or VAT hikes in these two categories. And this is not because accepting such painful austerity measures may risk to split SYRIZA. It is because such measures cannot be imposed to a society already economically collapsed, it is because the government cannot have the poor starve or have their electricity shut off and have all products skyrocket to prohibit prices.

Right after the meeting with Juncker, PM Alexis Tsipras told journalists in Brussels that a deal has to be reached without tough austerity measures.

“We are very close to an agreement on the primary surplus. That means all sides agree to go further without tough austerity measures of the past.”

But he also again ruled out scrapping a particular benefit for low-income pensioners or a value-added tax change that he said would raise the tax on electricity by 10 percentage points.

“At the end of the day,” Tsipras said, “I think the proposals on the table will be the proposals of the Greek government.”

Monday evening, Greece sent a 45-page draft plan to the creditors on Monday evening. Thursday morning Alexis Tsipras tweeted:

“Our proposal continues to be the only realistic and constructive proposal. The discussions will continue.”

According to media, the next meeting between Tsipras, Juncker and Dijsselbloem is scheduled for tomorrow, Friday, June 5th, the Day Zero, where Greece has to pay €300 million to the IMF or risk a “credit event.”


PS I feel dizzy…

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  1. costa sakellariou

    why will a hike in electricity result in higher prices?

    there are no more fridges being made by pitsos or any factories anymore, so what’s the difference, except to the end user?

    (not that i am in favor of it anyway-i support defaulting…)

    • keeptalkinggreece

      you comment as if there is zero production in Greece and everything is being imported. think of all dairy production, bakeries, shops, services and whatever comes in your mind.

  2. Martyn Gulliver

    The suggested hike in VAT will only affect private households (and some exempt businesses). The vast majority of businesses will be unaffected by the hike as the tax charged by the electricity company will be recoverable – therefore the tax take will be much reduced

    • Giaourti Giaourtaki

      It’s “only” more private households that have no money to pay electricity and a million small businesses that has to be destroyed by “liberalization” but thanks “Market” – the god of greedy scum – these small businesses have little impact on statistics of unemployment.
      It’s the same scheme that is behind their dream of VAT hikes in tourism: Destroy the whole sector to bring in big players that will “rescue” Greece by buying discount thousands of closed down family hostels and get these families as a bonus as even cheaper wage-slaves. This is also the background for the minimum-wage show as this wage affects only the private sector and higher wages bring more taxes.

  3. What did you expect?
    Syriza has stalled the economy and as a result, government spending has to be reduced.
    The bank run / capital flight has an effect on the real economy and makes austerity even harsher already this year.

    The Troika needs to brute force Syriza into a primqry surplus. The later they agree, the more damage to the economy and the harsher the required austerity.

    All this is nothing new, but Syriza is not able to learn as it seem.

    KTG, Syriza and you put the blame for this mess on the Troika. For how much longer, do you believe, can you fool the Greek voters? 3, 12, 36 months?

    The situation is getting worse for Greece by the day and soon your per capita GDP is on par with Albania, Macedonia and the others. Government spending will follow accordingly.

    By the way: do sou still dare to propagate the Syriza propaganda of “being close to an agreement”?

    • keeptalkinggreece

      Tsipras said: “close to agreement on the Primary Surplus” #Learn_Reading!

    • the IMF/1% resident minion of this blog keeps with is sociopathic masters crusade…

      “Syriza has stalled the economy”

      Is this a joke? A 25% deduction of GDP in the last 4-5 years and you say what? How can you say such delirious stuff? And what you think would be affect on the Greek economy and people of the sociopathic measures proposed by your masters? A hike in VAT, cuts in pensions, cut, cut,cut Do you think what? Economic growth will happen out of that? The only growth that happened recently in Greece occurred (and to what extend it is just statistical manipulation would be a big discussion…) because there was a stop in austerity! If you pause austerity there can be some growth, with the sociopaths measures there can only be more misery.
      Default, prepare to quit the euro, nationalize the banks. Thats the way to go, the rest are delusions or prolonging misery.

  4. Costa, your comment is very inaccurate. I run a store that relies on a lot of electricity. If my cost for electricity goes up 10%, I will raise my prices to cover that cost, you and the rest of the customers will pay the increase. And this goes for any business that uses electricity. So unless your selling watches on the street, every store owner will increase their prices, so it effects you and every Greek.

  5. A hike in VAT for electricity will further kill off SME.

    • Giaourti Giaourtaki

      Regarding Martin Schulz it’s off the table like other harsh measures too but that was new to Giorgos Chondros, last night on German ZDF/22:15
      Best was “Handelsblatt” idiot Weimer with Greek government being like a “Sirtaki dancing bull in the European china shop”, I guess as he doesn’t know about Greek dances he will not be able to understand that he is a racist… but as that is a typical comment and normally they would call Mr.Tsipras a country wrecking Alexis Sorbas I guess Sirtaki dance in this context is always meant to be rascism.

  6. I am American and know very little about this situation, but am horrified by what I am reading. These “austerity measures” the IMF wants to bully Greeks into are really nothing more than sadism. I’m not sure Greece should ever have entered the EU if doing so make itself vulnerable to this kind of blackmail.

    • I agree completely. Of course, the US had a very bloody civil war: maybe this is the beginning of a very modern civil war for the construction of a properly functioning European Union.

    • But its not joining the Eu that opened them up to blackmail, its having such a large deficit that makes you vulnerable. I have never understood this. Why arent leftist governments around the world pushing for balanced budgets? First of all creating all that government debt creates a huge flow of money from taxpayers to capitalowners, something any true leftists would want to avoid. Secondly when you run large deficits you have this blackmail potential, because unless the markets (the capitalists) trust/are willing to give you money, you are immediatly bankrupt.
      Mind youu wanting a somewhat balanced budget in the long run is different from the over the top austerity that happened in greece these last few year.Those ver procyclical and raising taxes/cutting spending is worst when your economy is already in downturn.

      • I can only presume that you have never studied economic history or economics. Countries cannot develop with balanced budgets, just as a business that never borrows money cannot succeed other than to remain as a small family business at subsistence level.

        It has been US economic propaganda for nearly a century that governments should not borrow money — yet Reagan was very happy to land the country in a trillion dollar deficit year on year, with no purpose other than to keep voters happy. Sweden was able to successfully industrialise with national debt spent on industrial investment by the state, starting in the 1950s.

        What people fail to realise is that economics is not a science: it is an art, with some identities, a few short-term relationships, and no long-term certainties. If the State does nothing, as neoliberals have imposed across many countries over the last decades, the result is poor economic development, unequal income distribution and massive social injustices. By pure coincidence, those who advocate such policies (the rich and much of the political class) have become far richer with their implementation. Far, far richer — while everyone else, including the professionals of the middle class, have declining incomes.

        • Of course they can its just going to be that much slower. Remember that Keynes originally proposed massive spending in times of economic downturn, but he also wanted that money to be saved in good economic times. Somehow that 2nd part always gets lost.
          Just to clarify this has nothing to do with the austerity measures right now, because those are procyclical.
          Now up to a point deficits are ok, especially for countries that can expect somewhat rapid growth over the next decades because they either have some catching up to do or because their population is growing.
          Neither of those contradicts the fact that once you run high deficits you are in a vulnerable position and possibly subject to blackmail.
          The sad part about this is that conservatives in most countries have mangaed to somehow paint themselves as fiscally responsible while those nasty socialist/socialdemocrats cant deal with money affairs, while the truth is leftist and rightis governments rack up about the same amount only that the leftists usally at least give it to the people via some social benefits while the rightist usually use to increase military spending or for tax cuts on the superrich.

    • Giaourti Giaourtaki

      Pl don’t forget that Greece entered the EU with wide support by European social democrats, just like Portugal and Spain as all three had been dictatorships, the last Coup d’etat happened in Spain 1982.