Why The IMF Will Reject The Latest Greek Proposal In Just Two Numbers

As we summarized earlier, the latest "final" Greek proposal is in trouble: it may very well not pass the Greek parliament due to mounting objections among all parties not least in Tsipras' own Syriza. But a Greek parliament vote on the decision may be moot: according to Bloomberg, Tsipras will fly to Brussels on Wednesday, where he will meet the heads of the Troika: Draghi, Juncker and, of course, Christine Lagarde.

It is the IMF's head that will tell Greece to go back to the drawing board.

Recall that as the WSJ reported, "the Washington-based IMF has said Greece’s economy is already too heavily taxed and that too many additional tax increases would hurt economic growth, making it harder to pay down Greece’s debt."

Also recall that as IMF's Olivier Blanchard explicitly demanded, Greece needs to cut spending, not hike taxes - which it has patently demonstrated it is incapable of collecting - and especially pensions: "Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone.  Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP.  We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners."

So why will the IMF throw up all over the latest Greek proposal in just two numbers? Here is the answer, courtesy of Kathimerini:

The proposals contain 7.9 billion euros of measures, of which 7.3 are from increases to tax and social security contributions.

The IMF demands no tax hikes and pension cuts. Instead it will get almost exclusively tax hikes, amounting to 92% of the proposed measures, and just a few cuts, few of which actually impact Greek pensions. In short: the proposal is not only unsustainable, it is also unenforceable, something which the Germans - already facing a third Greek bailout - will be quick to point out.

Which is why tomorrow, after Tsipras is finished with the meeting with the Troika, he will have a new homework assignment: revise the "final final" proposal and come up with much less in tax hikes, much more in spending cuts: something which the already furious hard-line elements within Syriza will have a field day with.

Then again, we already knew all of that:

  • IMF DISAGREES WITH GREECE ON CORPORATE TAX, VAT AND PENSIONS - EU SOURCES

And all this takes place just 7 days before the Greek payment to the IMF is officially due, at which point Greece may or may not be declared in default, but when the ECB will no longer be able to say Greece is compliant with the terms of its bailout program and will have no choice but to yank the ELA.

Full Greek proposal below (pdf link).

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