Greece rejects Creditor proposals as irrational

Greek flag

After earlier expressing optimism that a deal was near, Greek Prime Minister Alexis Tsipras told an emergency session of the Greek parliament that the government could not accept the "irrational" proposal given to it last week by its creditors.  Tsipras said that any deal must include lightening of Greece's crushing debt load. This appears to be a new emphasis since Greece has claimed continuously that it will meet all its debt obligations.

Tsipras said:"There is no question of our accepting an agreement that does not contain the prospect of debt restructuring"  The latest proposals from creditors do not address this issue. Greece does face a huge debt burden of almost 180 per cent of GDP.

Tsipras appears caught between the demands of creditors and demands from within his own party, many of whom think that the government should not give up any more of its anti-austerity policies at the command of its creditors. The Troika or "institutions" have been demanding further pension reforms including reductions and greater labor market flexibility as well as changes to the tax system.  The renewed conflict over bailout terms sent the Athens stock market down 5 percent on Friday and interest rate on two years bonds to a huge 24.5 per cent.

The downward movement in stocks may also have been partly due to the decision of the Greek government to make payment to the IMF for June all in one lump sum rather than four payments one of which was due yesterday. Economy Minister George Stathakis said that Greece would do everything possible to remain in the Eurozone. However, at the same time he too rejected the latest proposals from creditors. which included bigger budget surplus targets, tough cuts to pensions, and reforms to the labor market, the latter two issues being red lines that so far the Greek government has refused to give up.

He nevertheless insisted that Greece should not exit the Eurozone as many leftists in the Syriza party are now demanding. Stathakis said: “We have a mandate from the Greek people to go on, to try to change the terms of the agreement. Greece has to remain in the euro, otherwise we do not have any mandate to take action.” Given that creditors have shown no sign of giving up the demand for more pension cuts and changes to the labor market,  critics with Syriza are demanding that the government develop a Plan B which would set out how the government would proceed should a deal fail and the government defaults on loan payments.

Among the disastrous results of the prolonged Greek debt crisis has been flight not  just of capital and deposits from Greek banks but also the most talented people in Greece are leaving for other countries where job prospects are far better. Greece is probably the greatest net loser of talent in Europe although  Portugal, Italy, and Spain are experiencing the same problem to a lesser degree.

Sources:
http://www.nytimes.com/aponline/2015/06/04/world/europe/ap-eu-greece-bailout.html?_r=0
http://www.theguardian.com/business/2015/jun/05/greece-determined-to-stay-in-eurozone-economy-minister-george-stathakis
http://www.bbc.com/news/world-europe-33020420
http://www.bloomberg.com/news/articles/2015-06-05/greece-is-hemorrhaging-its-most-talented-workers#media-1

---