Ahead of a meeting between Prime Minister Alexis Tsipras, German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of an EU leaders’ summit in Riga, the Brussels Group continued its negotiations.
Despite expressions of optimism from the Greek side, European officials indicated that little progress has been achieved in the talks.
Apart from the key sticking points of pension and labour reform, officials were said to have different views on how to reform value-added tax rates. The Greek side wants three VAT rates – at 7 per cent, 14 percent and 22 or 23 per cent – while the creditors are said to want two rates – one at between 10 and 12 percent and one at between 20 and 23 per cent.
In the event that the creditors’ “two-rate” scenario prevails, the cost of several products currently in the low 6.5 per cent VAT bracket, chiefly medicine and books, will increase significantly as will the cost of services on many Greek islands which enjoy a reduced VAT rate of 6.5 per cent. Alternate Tourism Minister Elena Kountoura said yesterday that Finance Minister Yanis Varoufakis assured her there would be no changes to VAT this summer. She noted that rival destinations to Greece have a VAT rate up of to 10 per cent.
Pensions remained a point of contention, with creditors pushing for the abolition of early retirements and for the so-called 13th pension not to be restored, as well as labour reforms with the government insisting on the gradual restoration of the minimum wage and collective bargaining.
Talks also focused on primary surplus targets which are said to be close to 1 percent of gross domestic product this year and 1.5-2 per cent next year. There was also discussion about a 30 percent reduction to the solidarity tax on income being revoked for those with an annual income above 30,000 euros.
Despite the slight momentum in the talks, European officials were rather downbeat. “We are still far from an agreement,” one told Kathimerini. German Finance Minister Wolfgang Schaeuble was also very skeptical, saying reports from representatives of creditors suggested talks were progressing “very hesitantly.”
“What I know from discussions with the three institutions does not back up the optimism arising from announcements from Athens,” Schaeuble told Reuters.
Meanwhile, Suddeutsche Zeitung, citing an unnamed European official, said Greece’s current loan program is likely to be extended again into the fall, with some 4 billion euros in loan money to be unlocked in exchange for the implementation of some reforms. The report was dismissed by Varoufakis as “science-fiction scenarios.”