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News : EU Economy Last Updated: July 10, 2015 - 6:20 PM

Greece accepts most creditor demands in bid to stay in Euro Area - Text of Proposals
By Michael Hennigan, Finfacts founder and editor
July 10, 2015 - 6:20 AM

Alexis Tsipras, Greek prime minister, Brussels, July 7, 2015

After over five months of chaos, a renewal of recession, the imposition of capital controls, and an emphatic rejection of austerity in last Sunday's referendum, the Greek government on Thursday night presented new proposals to remain in the Euro Area, that meet most creditor demands.

In a 13-page detail that was leaked to the media, there is no reference to debt relief, nor is there in accompanying letters from the prime minister and finance minister.

Alexis Tsipras, Greek prime minister, says in his letter:

With this proposal, the Greek people and the Greek government, confirm their commitment to, fulfilling reforms that will ensure Greece remains a member of the Eurozone, and ending the economic crisis. The Greek government is committed to fully implementing this reform agenda — starting with immediate actions — as well as to engaging constructively on the basis of this agenda, in the negotiations for the ESM (European Stability Mechanism rescue fund) Loan."

Euclid Tsakalotos, finance minister, says in his letter:

[The proposal is] a vision which serves our commitment to remain an integral member of the Eurozone and respect the evolving rules of our monetary union; one that underpins that commitment with a comprehensive set of reforms and measures to be implemented in the areas of fiscal sustainability, financial stability, long-term economic growth and sustainable development, and, last but not least, reforming the public administration..."

On Thursday, Donald Tusk, European Council president and former Polish prime minister, said that a “realistic proposal from Athens” should be matched by “realistic proposal from creditors on debt sustainability” while Wolfgang Schäuble, Germany's hardline finance minister, said the possibility of some kind of debt relief would be discussed over coming days, although he warned it may not provide much help.

“The room for manoeuvre through debt reprofiling or restructuring is very small,” he said.

Angela Merkel, German chancellor, ruled out an actual debt writedown for Greece. “I have said that a classic haircut is out of the question for me and that hasn’t changed between today and yesterday,” she said.

On Wednesday, Jack Lew, US Treasury secretary, and Christine Lagarde, International Monetary Fund managing director, called on European leaders to provide debt relief to Greece.

“Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” Lagarde said. Getting out of that crisis would take both reforms by Athens and a “debt restructuring,” she said.

“In the next few days what we’ll see is [whether] the parties come together and build enough trust that Greece will take the actions that it needs to take so that Europe will restructure the debt in a way that is more sustainable,” Lew said in respect of the public debt of €317bn.

Athens is seeking a new 3-year bailout reported to be valued at €53.5bn in return for fiscal adjustments of about €13bn.

The government has agreed to target a primary surplus (excluding debt interest costs) of 3.5% of GDP by 2018; raise VAT revenues by 1% of GDP or about €1.8bn, apply the top 23% rate to processed food, while retaining a lower-rate for some islands; solidarity payments for the poorest pensioners are to be abolished by December 2019, a year earlier than planned and the retirement age will rise to 67 by 2022.

There will be higher health contributions from pensioners; the corporate tax rate will rise 2% to 28% and the rate of the shipping tonnage tax will rise while "special tax treatments" for the shipping industry and farmers will be phased out.

There are other tax changes, administrative reforms and the privatisation program which was suspended last February will be subject to deadlines including the announcement of "binding bid dates for Piraeus and Thessaloniki ports of no later than end October 2015."

The Greek Parliament will be asked to approve the proposals today and in Brussels the Eurogroup of finance ministers will review the situation on Saturday ahead of an EU leaders summit on Sunday.

Greece was star economic performer in 1950-1973; Budget deficits every year since 1974

Irish lessons for Greece on growing exports and investment 

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