Greece’s new government made clear on Wednesday it wants a six-month loan extension from the European Union while dumping the bailout it campaigned against.
In a speech to parliament on Tuesday, Greek prime minister Alexis Tsipras, whose far-left Syriza party won the election last month, reiterated his commitment to rolling back many of the reforms that were enacted under the country’s bailout agreement with the European Union and the International Monetary Fund.
Tsipras said he would not accept an “ultimatum” from the rest of Europe and was in “no rush” to find a deal.
However, Greece’s current aid program runs out by the end of February, raising the fresh prospect of a sovereign default if it can’t find help before then.
German finance minister Wolfgang Schäuble ruled out a loan extension without conditions, telling ZDF television, “It’s not about extending a credit program but about whether this bailout program will be fulfilled, yes or no.”
Given Tsipras’ insistence on reversing the economic reforms his country has undertaken since 2010 in order to qualify for a total of €240 billion in financial support from other European Union countries and the International Monetary Fund, a compromise seems elusive.
Tsipras earlier announced plans to restore collective wage bargaining and raise the minimum wage almost 30 percent, reneging on labor reforms that were a condition of its bailout.
Syriza also promised 300,000 new jobs to bring down Greece’s 26 percent unemployment rate. Many of the new jobs would be created in the public sector, violating Greece’s commitment to shrink the state.
In the years leading up to the crisis, Greece expanded its public sector by an estimated 150,000 workers to over one million, or 21 percent of the workforce.
Immediately after taking office, Tsipras canceled the privatization of Greece’s largest seaport and its public power utility. He also promised to scrap a new property tax and reinstate pension bonuses.
With pension spending equaling 17 percent of economic output — the highest ratio in the eurozone — Greece’s creditors say its retirement system desperately needs an overhaul. Yet Greece resisted previous calls to restructure pensions and Syriza considers any cuts “recessionary.”
The one area where Tsipras and other leaders might find common ground is cleaning up Greece’s public administration and cracking down on tax evasion. But Syriza’s claim that this will raise an additional €5.5 billion in tax looks ambitious and Greece previously turned down offers from other European countries to help it set up an independent tax commission and a reliable national land registry.
The parties are even further apart on the question of Greece’s debt. Tsipras wants other European countries to forgive part of Greece’s €315 billion debt, some 90 percent of which is owed to official creditors. Greece’s privately-held debt was already restructured in 2012. Leaders from Austria, Finland, Germany and the Netherlands have flatly ruled out debt relief.
Under existing agreements, Greece isn’t expected to start paying back until 2022. The cost of servicing its debt is fairly low at an estimated 2.6 percent of annual economic output.
Thanks for your article Nick Ottens. Greek debt denominated in Euros carries an average interest rate of less than 1.5%, and a long maturity.
Why isn’t Tsipras pleased with such a low and below market rate interest rate on long dated Greek debt?
Because Greek debt has such low interest rates and long maturities, Tsipras is unlikely to generate much short term revenue by defaulting on Greece’s debt. A small fraction of the revenues Tsiparas needs to fund his ambitious spending programs and tax relief. How does Tsiparas plan to pay for the rest of his proposals.
What are Tsiparas’ plan to facilitate business development, product development and international investment in Greece? Does he have pro business ideas to encourage private sector growth in Greece? Does he have ideas for how to persuade successful and rich foreigners to move to Greece and pay Greek taxes?
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