The full text of the Greek government’s proposal to its European creditors is now publicly available, and the Financial Times has a helpful rundown of how the new Greek proposal compares with the reform package Greek voters rejected so decisively on Sunday.
The latest Greek proposal looks a lot like the one Greek voters just rejected
In short: The Greek government is almost completely capitulating. Looking at the remaining areas of disagreement simply reveals how extremely far Greece has moved in the direction of the creditors’ previous demands.
One longtime sticking point has focused on the taxation of Greek islands. The Greeks wanted to maintain the tax discount they currently enjoy in order to promote tourism and compensate for the higher cost of living. EU officials wanted Greece’s Value-Added Tax (VAT) to apply equally in all parts of Greece. The latest proposal offers to phase in the higher rates, “starting with the islands with higher incomes and which are the most popular tourist destination,” over the next 18 months. The plan would only exempt “the most remote ones” from the higher rate.
Similarly, the Financial Times points out that Greece’s creditors want pension cuts to take effect immediately, while Greece wants to wait until October for the plans to take effect.
The fundamental issue here is that Greek Prime Minister Alexis Tsipras has no leverage. He didn’t have any leverage before he called a referendum on the European proposal two weeks ago, and winning the referendum hasn’t given him any additional leverage. The current stalemate is causing a lot more economic pain for ordinary Greeks than for ordinary Germans or Italians, and a Greek exit from the eurozone wouldn’t cause the kind of continent-wide meltdown it might have caused in 2010.
It’s possible that European leaders will still be dissatisfied despite Greece’s substantial movement in their direction. German Chancellor Angela Merkel recently said that the Greece now faces “a challenge of a different nature than it was 10 days ago because over the past few days the economic situation of Greece has not improved.”
Yet the extent of Greece concessions will put significant pressure on Merkel and other European leaders to make a few compromises of their own. So negotiators may yet find a way to keep Greece in the eurozone.
