Tsipras unveils €8bn savings, cedes ground on pensions

Greece edged closer to a last-ditch agreement with her eurozone creditors on Monday (22 June), after Alexis Tsipras i’ government promised to raise an extra €8 billion over the next two years.

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.

As expected, the remaining proposals are almost exclusively based around new tax increases, the most significant of which is a new 12 percent levy on all corporate profits over €500,000, which the Greek government expects to bring in €1.35 billion in extra revenue.

In an interview with the BBC on Monday, Greek economy minister Giorgios Stathakis said that the Syriza government had not breached its red lines by reducing pensions or wages.

Elsewhere, Syriza has promised to reduce military spending by €200 million, and raise €410 million in 2016 from an increase in corporation tax from 26 percent to 29 percent, together with €100 million per year from a new TV advertisements tax.

It also wants to widen the scope of a so-called ‘luxury’ tax to cover private swimming pools, planes and boats.

However, the focus on tax increases aimed at the rich and on businesses may cause disquiet among EU and International Monetary Fund (IMF) officials who want Athens to go further with privatisation of state assets and labour market liberalisation.

Meanwhile, the Greek proposal promises to achieve a 1 percent budget surplus in 2015, followed by 2 percent and then 3 percent in 2016 and 2017, respectively, as demanded by the IMF and the eurozone.

The proposal received a cautious response.

“We have a huge amount of work to do on Greece,” said IMF boss Christine Lagarde i.

The plan was “broad and comprehensive” and “a basis to really restart the talks,” Jeroen Dijsselbloem i, the chairman of the 19 member Eurogroup, told reporters.

Eurozone finance ministers will reconvene in Brussels on Wednesday, ahead of an EU leaders summit on Thursday and Friday. In the meantime, number crunchers on both sides will examine the fine print of the Greek blueprint.