Greece is supposed to sign a three years
Memorandum of Understanding for the value 86 bn euros. To gain access to
this capital, Athens must “regain the confidence” of its partners. The
price of confidence is dear.
Mrs Lagarde will remain part of the scene
and the IMF one of the “the institutions,” contributing 16bn euros in
the new program. However, the bulk of the capital will come from the
European Stability Mechanism.
The Greek Parliament must immediately
adopt the new punitive austerity measures on cuts, tax hikes, and
privatizations prior to concluding the agreement. Then, the Parliaments
of Germany and Finland must also approve the agreements.To add insult
onto injury, the Greek government will first have to withdraw two main
items of legislation that passed without the “authorization” of the
institutions, namely a program for the spread of payments for taxes and
social security contributions for thousands of households and businesses
that fell behind with payments over the last few years; in addition,
the Greek government must fire a few thousand public employees.
On privatizations, a trust fund will be
created for the transfer of assets up to the value of 50bn euros. Half
of this capital will be used to fund the recapitalization of Greek
banks, to be fully privatized. The fund will also include the
electricity network, roads, the railway, airports, and ports.
There will be hikes in VAT charges that
undermine the purchasing power of households and the competitiveness of
key economic sectors. Therefore, the increase of VAT charges on basic
food and on services such as catering (from 13 to 23%) and hotels (from
6,5% to13%), multiple of those charged in neighbouring countries. In
addition, the enormous Greek archipelago with huge transport costs will
now see VAT charges increased. That is not merely Mykonos and Santorini,
but islands few tourists have heard off.
On pension reforms, all pension funds will
be merged, ensuring a race to the bottom for all pension schemes.
Thereafter, there will be gradual raise of the age of retirement to 67
and the end of a subsidy for the lowest pensions in the system. This
will affect about 300,000 pensioners who will see their pension slashed
by 30-40%. At the same time, social security contributions will
increase, in a labour market with enormous unemployment. Also, the
public sector payroll will be “reformed” again to secure more savings.
Meanwhile, there are also a number of
other structural reforms: opening shops on Sundays, the opening of
non-prescription drugs retail market, the opening of the dairy market by
redefining what is “fresh” and what is not.
When these key items of legislation have
passed through the Greek parliament, Greece will get short-term bridge
financing to avoid bankruptcy. The amount is estimated to be €7bn by
next Monday and another €5bn by mid-August.Soon afterwards, ESM will
release €10bn will be used immediately to recapitalize Greek banks,
setting side €25bn for this purpose.
Supposedly, Greece has secured a
development package of 35 bn in investment capital. This is not quite
the whole story. This is not “fresh capital” but a series of funds
already in place to be “mobilized” and “leveraged” to counterbalance the
austerity measures. So this is more a wish rather than a fact.
Supposedly, Greece has secured a promise
for debt re-profiling –“if that is necessary”—but this is not a
commitment to when and how much. What is certain is that this will
entail extending maturities, not nominal value haircut. Whether and when
Greek debt will become sustainable remains an open question. What is
clear is that Greece can only implement reforms.
http://www.neurope.eu/article/what-does-the-greek-program-look-like/