Germany Could Fall with Greece if no Greek Debt Solution is Found

The Greece vs Germany battle of wills is heating up again as the end of June deadline for saving Greece approaches. Most of the news we get comes from European media. Today, let's look at the situation through the eyes of Greek media. ~~~~~The To Vima Greek news network reports that the 47-page document which outlines the Greek government’s proposal for an agreement with the country’s creditors was publicized by German magazine Tagesspiegel. The proposal includes measures worth €1.9 billion for 2015, while introducing a 5% to 10% special tax on commercial profits over €10 million. The Greek government also proposes collecting €220 million from the solidarity contribution, €220 million from television networks, €120 million from uninsured vehicles, €100 million from taxing television commercials and €30 million from the luxury tax. Regarding VAT reform, the Greek proposal involves three rates – 6%, 11% and 23%. The 6% would cover medicine, books and theatres; the 11% rate would cover newspapers and magazines, basic and fresh food stuffs, energy, water, hotels and restaurants; and, the 23% rate would cover all other goods and services. The Greek proposal also includes a gradual abolition of early retirements, which will occur between 2016 and 2025, while increasing penalties for retirement before the age of 62 by 10%, from the current 6% penalty in effect. Concerning the primary surplus targets, the Greek proposal details a 0.6% GDP growth rate for 2015, 1.5% for 2016, 2.5% in 2017 and 3.5% in 2018. The Greek proposal also includes additional privatization plans and a series of reforms and measures to open “closed professions” and promote reforms detailed in the OECD’s toolkit. Finally, the Greek proposal includes a chapter on restructuring the country’s public debt. The proposal suggests that the IMF debt will be restructured in order to repay the total amount due in two phases : one by the end of June 2015 and the other in accordance with a subsequent refinancing of Greece’s public debt. ~~~~~ To Vima compared the Greek proposal with the Eurozone proposal presented to Greek Prime Minister Alexis Tsipras during his meeting with EU leaders. The proposal for an agreement presented to Tsipras on Wednesday by the European Commission contains harsher measures and tax hikes. The proposal is a 7-page list of prior actions and a 5-page list of policy commitments. The Greek creditors' - EC, ECB and IMF - proposal requires the adoption of a supplementary budget and a medium-term fiscal strategy for 2016 to 2019 to be adopted as of July 1, 2015. This means the measures must be approved by the Geeek Parliament in very rapid order. Among the changes that the Eurozone says need to be implemented are the VAT reform, which is to include two rates: a ‘low’ 11% rate for food, medicine and hotels and a 23% ‘standard’ rate for all products and services. Under this proposal all discounts and exemptions (such as for Greek islands) must be eliminated, and there is no 6% rate for medicine. The controversial ENFIA tax on real estate must remain in place, in order to generate revenue worth €2.65 billion in 2015 and 2016 irrespective of any changes to real estate tax values. As for pensions, the Eurozone proposal insists that Greece must abolish all early retirements and phase out the non-pension solidarity grant (the ‘EKAS’) by the end of December 2016. The proposal also demands that legislation for a new pension system be introduced in September, which will unify all funds and establish a closer link between contribution and benefits. Furthermore, the proposal requires a review of existing frameworks of collective dismissals, industrial action and collective bargaining, while taking into consideration practices in other European countries. Changes must also be introduced to increase competitiveness and open ‘closed professions’. Changes must also be implemented in social benefits, in an effort to cut costs by €900 million (about 0.5% of GDP) annually. This includes family and disability benefits. This is a much more draconian approach than the Greek government's proposal and not likely to be agreed as written. ~~~~~ Prime Minister Tsipras appeared in Parliament on Friday, where he informed the political parties of the progress of negotiations with the country’s creditors and partners. With no agreement yet reached and time running out, according to To Vima many European sources have confirmed that a new high-level meeting will soon take place, in an effort to overcome the impasse. Although the recent meeting between Tsipras, EC president Jean-Claude Junker and Eurogroup chief Jeroen Dijsselbloem was said to be constructive and carried out in a positive climate, a European official told To Vima that there was still a major gap between the sides. Greece's prime minister called the Eurozone proposal "absurd" and again warned international creditors not to humiliate Greece. He briefed Parliament amid growing opposition in his leftist Syriza party to the creditors' proposals. Earlier, Greece delayed Friday's €300 million debt repayment to the IMF. Tsipras described the lenders' plan as a "bad moment." ~~~~~ The German Ministry of Finances has confirmed a meeting next week between Greek Finance Minister Yanis Varoufakis and German Finance Minister Wolfgang Schäuble. The German Ministry says the meeting was arranged at the request of Greece. The meeting will likely take place on Tuesday. ~~~~~ Meanwhile, Prime Minister Tsipras and Russian President Vladimir Putin arranged to talk by phone on Friday, at the request of Tsipras. The two leaders are expected to discuss issues related to Tsipras’ upcoming visit to St Petersburg in June, as well as the cooperation of the two countries in the business and energy sectors. Tsipras is scheduled to appear at the international business forum to be held in St Petersburg between the 18th and 20th of June as a guest of honor. Tsipras visited the Kremlin earlier in April, where decisions were taken regarding the GreekStream natural gas pipeline. ~~~~~ Ekathimetmeinis Greek business news, reports that European shares traded lower on Friday setting a regional index on course for its steepest weekly fall so far this year, after Greece delayed an IMF debt payment and as caution prevailed before US employment data. The pan-European FTSEurofirst 300 index was down 1% at 1,543.66 points at 0759 GMT. Greece's Athex General Composite index was down 3.1%. Greece delayed the payment to the International Monetary Fund, due on Friday, as Greek Prime Minister Tsipras demanded changes to tough terms from international creditors for aid to stave off default. Greece will roll together all its June payments and transfer $1.7 billion to the IMF at the end of June. The FTSEurofirst is down 4.6% since the start of the week, setting it on course for its biggest weekly fall since December against a volatile market backdrop in which yields on German Bunds rose to eight-month highs on Thursday and the Euro has yo-yoed against the Dollar. "I would stay short (stocks) until there is more clarity on Greece," Mike Reuter, a trader at Tradition, said. He said the current, unusual correlation between German government bonds, traditionally a safe asset, and shares was unlikely to last, with the former likely to do well if Greece defaulted and the latter to rebound if it didn't. In this context, investors were awaiting US jobs data, due at 1230 GMT and expected to underpin expectations of a rate hike as early as September. This would likely further lift bond yields across the world but might benefit Eurozone shares by pushing down the Euro. Economists polled by Reuters expect May's non-farm payrolls report to show that US employers added 225,000 jobs. "It's going to have to be higher than 300,000 to reawaken thoughts of a June (US rate) hike," Andy Ash, head of sales at ADM Investor Services, said. [NOTE : US non-farm private job data for May came in at 262,000 for an overall addition of 280,000 jobs in May.] ~~~~~ Dear readers, the markets cannot figure out what will happen as Germany and Greece play out their very high stakes political game. Chancellor Merkel must contend with a German electorate that does not want to give more money to Greece, while Greek Prime Minister Tsipras knows that if he agrees to continuing, and adding even more harsh, austerity measures for a Greek electorate exhausted and stripped of jobs, money and public services, his government will fall. In Europe, the bet is that Germany will blink because of the possibility of large unforseeable consequences if Greece falls out of the Eurozone. European analysts are warning of similarities with the Lehman Brothers collapse that quickly and unexpectedly pulled down many other financial and other institutions. June will be a key month for the future of the Euro and its German export-driven economic growth, which could suffer as much as the Greek economy if no Greek debt solution is found.