At least that’s what Zero Hedge has taken away from the various news stories on Greece’s latest proposal to beat the looming end-of-month deadline for making the payment they owe to the IMF.
From the troika’s perspective, breaking Greece and forcing PM Alexis Tsipras to concede to pension cuts and a VAT hike is paramount, and not necessarily because anyone believes these measures will put the perpetually indebted periphery country on a sustainable fiscal path, but because of the message such concessions would send to Syriza sympathizers in Spain and Portugal. In short, the troika cannot set a precedent of allowing debtor nations to obtain austerity concessions by threatening to expose the euro as dissoluble.
But the Eurocrats are claiming there’s still work to do.
The pension changes are evidently types of “austerity” that let Greek PM Alexis Tsipras claim he didn’t actually cut pensions:
Under the proposal submitted to eurozone ministers, the Greek government would raise just under €2.7 billion in extra revenue this year, followed by a further €5.2 billion in 2016.
The blueprint, which will now be assessed by Greece’s creditors ahead of a second meeting of finance ministers on Wednesday and an EU leader’s summit the following day, includes concessions that go far beyond previous offers made by the left-wing Syriza government.
Greece’s main concession is on pensions, long regarded as the major sticking point by its creditors, where it has unveiled plans to make almost €2.5 billion in savings.
Having vowed not to reduce state pensions during his successful election campaign in January, Tsipras’ government has proposed to raise €645 million over the next two years by increasing health contributions to 5 percent. Other savings will come from restricting early retirement and increasing state pension contributions.
Greece has also agreed to raise the retirement age to 67 by 2025.
The pension savings are equivalent to 0.37 percent and 1.05 percent of GDP in 2015 and 2016, moving closer to, but still below the 1 percent each year demanded by the eurozone.
On top of these savings, a regime of government payments to the poorest pensioners – known as Ekas – will be replaced in 2020. Public spending on pensions currently amounts to 16 percent of Greece’s GDP.
The fact that more than 2/3rds of the savings are back-loaded into 2016 suggests we’ll end up doing this same dance sometime next year. Greece may have (finally) agreed to enough reform that, if implemented (a big if) would at least keep it afloat until next year. But until they stop racking up debt to keep funding their welfare state, more economic pain inevitably lies ahead…