Latest Greek Reform Plan Unlikely to Convince Creditors

Plans to raise taxes while slowing liberal economic reforms are unlikely to woo Greece’s creditors.

Greece’s latest reform plan emphasizes revenue increases at the expense of liberal economic reforms its international creditors say are needed to grow the Balkan nation’s economy and justify continued financial support.

The reform plan (PDF), submitted to eurozone authorities on Wednesday and published by the Financial Times, includes a series of tax changes to boost revenue by as much as €6 billion this year. The measures include crackdowns on tax evasion and the introduction of a lottery scheme to encourage Greeks to demand receipts and prevent companies from avoiding paying sales tax. A levy on luxury goods would be raised as would the top income tax rate.

The changes are in line with promises Prime Minister Alexis Tsipras’ far-left Syriza party made before winning the election in January. Additional revenue would be used to finance poverty alleviation in the form of food stamps, rent subsidies and electricity for households unable to pay their bills.

However, the document fails to spell out an overhaul of the Greek pension system and makes no mention of labor market liberalization.

If anything, the latest proposals would reverse improvements made in both areas. It would free up €600 million to pay a thirteenth month of pensions and gradually raise the minimum wage “after consultations with the social partners.”

Tsipras had previously seemed to walk back his campaign promises to raise the minimum wage and restore collective bargaining.

The document reiterates his government’s skepticism of the comprehensive privatization effort Greece was supposed to undertake, arguing it has failed “spectacularly.”

Immediately after taking office, Tsipras canceled the privatization of Greece’s largest seaport and its public power utility. His energy minister, Panagiotis Lafazanis, said privatizations were “over.”

Wednesday’s plan nevertheless promises that existing contracts will be honored and that privatization procures currently underway will not be canceled.

But future selloffs will be considered on a “case-by-case basis,” it says, “with a view to maximize the state’s long-term benefits, guarantee minimum investment levels by the successful bidders, generate revenues, enhance competition, secure minimum working conditions for employees and promote economic recovery.”

The latest plan is more detailed than previous proposals submitted to Brussels which eurozone officials and the International Monetary Fund — which jointly administers Greece’s bailout with the European institutions — said lacked specificity. The IMF had also questioned Greece’s will to undertake the envisaged reforms.

Tsipras came to power on promises to reverse many of the policy changes Greece has made since 2010 in order to qualify for a total of €240 billion in financial support. His continued refusal to honor the commitments previous Greek governments made has irked especially Northern European countries, including Germany, but also other eurozone member states that received financial support during the bloc’s sovereign debt crisis. Ireland and Portugal both implemented tough austerity measures and do not see why Greece should get respite when they bit the bullet.

Tsipras has not helped his case by demanding war reparations from Germany and accusing Portugal and Spain of taking a hard line in negotiations in order to bring down his government. Members of his cabinet have threatened to flood Europe with immigrants, including militants who might have been fighting for the Islamic State in Iraq and Syria, if Greece doesn’t get its way or to seek help from Russia instead.

Time is short because Greece could run out of money this month. Without continued financial support, it might have to default on some of its debt payments. A default would raise doubts about the country’s future in the eurozone.

The anxiety has pushed Greece’s economy back into recession after it finally posted some growth last year. The Economist reports that Greek citizens have stashed up to €10 billion under their mattresses since Syriza came to power, fearing capital controls or even a forced exit from the euro. Another €15 billion in deposits has moved out of the country in the last couple of months.