Greece sends reform plan to EU promising new tax hikes

ATHENS/FRANKFURT (TIP): The Greek government sent a package of reform proposals to its euro zone creditors on July 9 in a race to win new funds to avert bankruptcy and will seek a parliamentary vote on Friday to endorse immediate actions.

In the latest proposals, Greece has asked for 53.5 billion euros ($59 billion) to help cover its debts until 2018, a review of primary surplus targets and “reprofiling” the country’s long-term debt.

In turn, Athens bowed to demands to phase out tax breaks for its islands –cash cows for the tourism industry –and to hike taxes on shipping companies.

The chairman of Eurogroup finance ministers confirmed receiving the documents but will not comment until they have been assessed by experts from the European Commission, European Central Bank and International Monetary Fund. US stock futures jumped 1 percent in early Asian trade on the announced measures.

Greek lawmakers will be asked on Friday to authorise the leftist government to negotiate a list of “prior actions” it would take before any fresh aid funds are disbursed, a key step to convince sceptical lenders of its serious intent.

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Leftist Prime Minister Alexis Tsipras spent the day with his cabinet drafting a last-ditch package of measures on which Greece’s survival in the euro zone hinges.

A further vote would be needed to turn them into law if euro zone leaders agree at a summit on Sunday that the proposals are a basis for starting negotiations on a three-year loan and releasing some bridging funds to keep Greece afloat.

In a sign of possible trouble ahead, the head of Tsipras’s junior coalition ally — which has threatened to pull the plug on the government if the island tax breaks were scrapped — did not add his signature to the reform proposals. Neither did Energy Minister Panagiotis Lafazanis, who leads the far-left flank of the ruling Syriza party.

The latest offer also included defence spending cuts, a firm timetable for privatising state assets such as Piraeus port and regional airports, hikes in VAT for hotels and restaurants and slashing a top-up payment for poorer pensioners.

Greek banks have been closed since June 29, when capital controls were imposed and cash withdrawals rationed after the collapse of previous bailout talks. Greece defaulted on an IMF loan repayment the following day and now faces a critical July 20 bond redemption to the ECB of 3.49 billion euros, which it cannot make without aid.

The country has had two bailouts worth 240 billion euros from the euro zone and the IMF since 2010, but its economy has shrunk by a quarter, unemployment is more than 25 percent and one in two young people is out of work.

Germany, Athens biggest creditor, meanwhile made a small concession by acknowledging that Greece will need some debt restructuring as part of the new programme to make its public finances viable in the medium-term.

The admission by hardline German Finance Minister Wolfgang Schaeuble came hours before the midnight deadline for Athens to submit its reform plan.

Schaeuble, who makes no secret of his doubts about Greece’s fitness to remain in the currency area, told a conference in Frankfurt: “Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that.”

But he added: “There cannot be a haircut because it would infringe the system of the European Union.”

He offered no solution to the conundrum, which implied that Greece’s debt problem might not be soluble within the euro zone.

But he did say there was limited scope for “reprofiling” Greek debt by extending loan maturities, shaving interest rates and lengthening a moratorium on debt service payments.

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