Some details of the Greek proposal have leaked out.
— Joost de Vries (@devriesjoost) June 22, 2015
Note contrary to earlier media reports, it technically does not lower pensions payments but does reduce pension spending by requiring higher contributions, including payments from retirees themselves. As the Guardian’s Athens reporter, Helen Smith, notes:
……there’s a hefty increase in revenues from VAT over the next 18 months.
Greece has also accepted that pension must be reformed, and is planning a hike in pension contributions and an increase in health contributions from retirees. However, it appears that actual pension rates won’t be cut, allowing Athens to argue it has kept to its red line.
Another quick verdict is that “pensions are almost spared“. And while European leaders are urging their peers to consummate a deal, it’s not clear these pension moves will be enough to satisfy countries like Slovaka, which have said they can’t stomach financing Greece’s more generous pensions. One rebellious country could probably be shamed into line, but we have yet to hear of the reactions from the real hardliners like Finland and Spain, since the summit has just begun.
However, regardless of what you think of the pension finesse, the Syriza government has agreed to continue with austerity. A 1% primary surplus for 2015, which was the creditors’ target that Greece accepted the weekened before last, contrasted with the IMF estimated that primary surplus for 2015 was going to be as low as negative 1.5% roughly a month ago, represents a big hairs shirt for Greek citizens. Even though recent Greek budget releases show the primary surplus above the target for the first five months, if you look into the details of how that was achieved, it was through payment deferrals and cuts. Those payment deferrals, meaning non-payments to important vendors like pharmaceutical suppliers will need to be made more current, and other reserves that have been run down to make payments such as the borrowings from the IMF reserves, will also need to be made up at some point. That means that the actual impact of meeting the target will be greater than the 1% when you allow for where it would be if Greece were as current as it has been whether new government came in, as opposed to stretching payables to such and extreme degree.
If you take the IMF estimate of a 1.5% primary deficit as a decent representation of where things stand if the Greek government had been paying bills on a normal bassi, that means the amount of austerity being inflicted this year is close to 2.5% of GDP. That is essentially the same increase as the pre-negotiation target of 3.0% of GDP relative to Greece having primary surpluses before the negotiations began Recall that the February Eurogroup memo that Greece signed, which said that the primary surplus target would be adjusted in light of current conditions, that is arguably what happened, that the target was adjusted to produce the same degree of “fiscal consolidation” and not actual relief.
And not only is this year’s level harsh in an already severely depressed economy but 2018 and later target of 3.5% is simply draconian.
Although the Greek government will try to spin otherwise, the new coalition has agreed to continued austerity. They are now just hashing out implementation details.
Update 3:00 PM: Reader Ned Ludd pointed to a link I had yet to see, as of 7:00 AM:
The proposals, formally submitted to creditors Monday morning, foresee new pension savings and revenues worth 0.4% of gross domestic product for this year and 1% starting next year, the officials said. That would bring the left-wing government in Athens close to the target demanded by its creditors. […]
Greek officials said that much of the pension target would be achieved by increasing contributions from employers. On top of that, an extra payment to the poorest pensioners, known as EKAS, would be phased out between 2018 and 2020, the officials said.
Based on that, the odds are very high that this deal goes through. The Greek government is delivering on the 1% of GDP pension cuts demanded by the creditors, with the big “concession” that the government is getting is that it is being implemented in phases.
And Lambert provided this tweet:
Editor in chief of Syriza paper Avgi tells me: Tsipras can sell this deal to MPs – just- because of nod to debt and redistribution measures
— Paul Mason (@paulmasonnews) June 22, 2015