Greece yields, world hopes

New Delhi: While Greece’s creditors suggested for the first time that a deal to avert the country’s bankruptcy was in sight after an 11th-hour proposal submitted by Athens on Monday made a significant concession on pension cuts, euro zone leaders, who held a summit to discuss Greece’s offer, said that more work was needed to ensure the government’s figures were in line with creditors’ demands.

But the proposals were promising enough, the leaders said, to continue talks in the coming days with the aim of reaching an agreement later this week.

Though the Greek government insisted that none of its red lines had been crossed, finance ministers from euro zone countries believe Athens has made significant concessions by agreeing to raise an additional €2.7 billion in revenues this year. Brussels called the plan “detailed, credible and impressive”, and saw it as the basis for an agreement that would have further bailout funds released to Greece. “It’s the first big positive sign from the Greeks,” said one official. “It’s the most comprehensive proposal they have made.”

European Council President Donald Tusk, who chaired the emergency summit of the 19-nation currency bloc, called the Greek proposals “a positive step forward”. However, there must first be a detailed agreement with representatives of European governments, the European Central Bank and the International Monetary Fund (IMF) to ensure the numbers add up, he said. .

Euro-area finance ministers did, however, temper optimism that a deal on Greece was in the offing, saying that expectations of a breakthrough were inflated amid confusion over fresh Greek proposals intended to unlock aid, according to a Bloomberg report.

Dutch finance minister Jeroen Dijsselbloem said it was “impossible to have a final assessment” of the Greek proposals since they had arrived so late, while his Irish counterpart, Michael Noonan, said he expected ministers to have to meet again on Thursday.

At the heart of the proposals submitted to Brussels by the Greek government on Monday—and central to the disagreements remaining between Athens and its creditors—is the issue of tax. According to reports circulating in Athens, the government offer to negotiators includes corporation tax increases on companies with profits over €500,000 and additional income-tax for individuals with annual earnings of more than €30,000. The Syriza government is also understood to be ready to make bars and restaurants charge valued added tax at the top rate of 23%, as demanded by Greece’s creditors. But it wants to keep two lower bands: one at 13% for energy and basic foods and another band at 6.5% for medicines and books.

In fact, VAT is the main sticking point to getting a deal, with Greece’s proposed target for 2016 still some way short of creditor demands. Creditors want savings from VAT in 2016 of 1% of the gross domestic product (GDP) and this could be achieved by raising sales tax on catering to a rate of 23% from 13%.

The differences between the two sides, a radical government seeking a paradigm shift in the economic policies in Athens and the liberal economic reforms proposed by the creditors and the International Monetary Fund (IMF), have came to a tipping point, says a Livemint report. After incessant threats and ultimatums, the two sides seem to be inching towards a compromise. But can such compromises work beyond a few months?

While the Greek government is determined to wrap up what it sees as an onerous relationship with IMF and its other bailout monitors by March next year, when its current IMF programme expires, the inescapable reality is that Greece is likely to need the IMF’s help far beyond the current four-year, $30 billion bailout.

Meanwhile, a column in Financial Times says all routes out of the Greek crisis will lead to chaos, while listing out three options. Route one involves making concessions to Greece. Route two involves standing firm and allowing Greece to leave the euro. Route three involves Athens largely accepting the demands of its creditors. To understand how,

Is Greece in a depression? They are most certainly experiencing some form of “Great Contraction” or “Great Recession.” But is it a “Great Depression” like in the 1930s? Or is Greece in the early stages of a “Long Depression” like the US from 1873 to 1896—longer and shallower than what followed on in 1929? To find out if Greece is in a worse spot than America was in 1933,

But then Greece makes up just 2% of the euro zone economy, so should you care about what finally happens? A BBC report, published before the meet, remains relevant as it helps understand how it could affect the global economy.

Above and beyond the economics of the Greek crisis, however, what is clear is that the political implications of a default and possible euro exit would be huge and largely negative.

Much is also at stake for German president Angela Merkel. If she secures a reforms-for-loans agreement with Greece, avoiding an Athens default, she will be the leader who pulled the euro back off the ledge. If she fails, triggering a Greek default and its euro exit, the euro will, by her logic, have failed as an irreversible driver of European integration. And the East German physicist once plucked from obscurity by Helmut Kohl will go into the history books as the woman who undermined her patron’s political legacy. To read what Merkel’s options are in this scenario,

[“source – livemint.com”]