Issue link: https://maltatoday.uberflip.com/i/537300
maltatoday, SUNDAY, 5 JULY 2015 News 17 troducing cuts from 2015. A major bone of contention is the proposal to phase out the "solidar- ity" top-up grant that some 200,000 poorer pensioners get, cutting the grant for the wealthiest 20% of re- cipients and removing the scheme completely by 2020. Moreover, the troika wants Greece to increase the retirement age to 67 by 2022 and create strong disincentives to early retirement. The proposal also suggests broad- ening the VAT base at a standard rate of 23%, and would include res- taurants, and catering. The credi- tors also proposed a reduced VAT rate of 6% on pharmaceuticals, books and theatres, an increase on tax on insurance and the elimina- tion of tax exemptions for Greek islands. Why did the Greek government refuse the deal? In January the newly elected left- wing government promised to end years of austerity measures while remaining a member of the Euro- zone. Pointing to the nation's 25.6 per- cent unemployment rate, Tsipras argues that Greece can't handle more austerity. This week, Greek finance min- ister Yanis Varoufakis explained that the negotiations broke down because Greece's creditors refused to reduce the country's un-payable public debt and insisted that "it should be repaid 'parametrically' by the weakest members of our soci- ety, their children and their grand- children." What are the Greeks demanding? On Tuesday, Greece sent a new proposal for budget cuts and policy overhauls as part of a request for a new €29 billion two-year bailout using funds from the European Stability Mechanism and not part of the current programme which expired on Wednesday. Tsipras agreed to accept most of the troika's demands for taxes and pension cuts and asked for a new €29 billion loan to cover all debt service payments in the next two years. However, even if negotiations do restart after the referendum, Ger- man Chancellor Angela Merkel has made it clear that any talks on a new bailout would have to start from scratch with different condi- tions. What will happen? Greece is still in the single cur- rancy, and a defiant Varoufakis said "Greece will stay in the euro," adding that deposits in banks were safe. "Creditors have chosen the strat- egy of blackmail based on bank clo- sures. The current impasse is due to this choice by the creditors and not by the Greek government dis- continuing the negotiations or any Greek thoughts of Grexit and de- valuation. Greece's place in the Eu- rozone and in the European Union is non-negotiable," Varoufakis said. Greek banks appear to have enough cash to pay €2bn worth of welfare and pension payments this week and a large public sector pay bill. What is less clear is the amount of funds left in the banking sector to repay depositors should a dispute with the EU drag on for several more weeks. In the worst case scenario, the Greek central bank will be forced to switch to a new currency, most likely at a lower value than the euro. If Greece does exit the euro, it can work out a long-term debt management plan with its credi- tors, probably with a hiatus for a year or two while the country gets its house in order and with a dis- count on the original sum owed. Is it that simple? No. Greece and Europe are head- ing towards uncharted waters. Given the nature of the euro, if Grexit does materialise the cur- rency will remain intact, or at least that is what the remaining members will hope. Athens could rely on the large number of euros in the economy and the stock of funds sitting inside the banking system to stagger on for several weeks, especially if the European Central Bank (ECB) maintains a facility for trading euros with do- mestic banks. But if the Greek central bank fails to repay a €3.5bn loan on 20 July, the ECB could demand more col- lateral from Greek banks for the €89 billion of Emergency Liquidity Assistance and possibly switch off access to euros altogether. With- out access to euros, Greek banks would struggle to remain open. If Athens is denied access to euros, it could be forced to issue IOUs to suppliers and possibly employees and welfare recipients, passing a law forcing businesses to recognise the IOUs as currency. Then Greece could resurrect the drachma and start printing new currency. Greece in numbers 25% The Greek economy has shrunk by one-fourth since 2008 35.7% The percentage of the Greek population at risk of poverty or social exclusion 45% Almost half of the country's 2.5 million pensioners live on incomes of less than €665 a month – below the poverty line defined by the EU €60 Cash machine withdrawals are capped at €60 per bank card until 6 July 60% The percentage of 15- to 24- year-olds out of work 63 On average Greek men retire at 63 while women retire at 59 68% More than two-thirds of workers in Greece earn less than €1,000 a month 174% Greece's public debt to GDP ratio, almost twice the Eurozone average €586 The legal gross minimum wage is €586.08 a month in the private sector €19,600 GDP per capita fell from €23,500 in early 2007 to €19,600 in late 2014, a 17% decline 405,666 The number of Greeks who have left the country since the 2007- 08 financial crisis 1.2 million The number of unemployed in Greece has nearly tripled since 2010 11 million The population of Greece was calculated as 10,816,286 in the 2011 census €177 million In 2010, Malta gave Greece a loan of €50 million as part of the initial €110 billion bailout and a further €127 million to the European Financial Stability Facility in 2012 as guarantees for further Greek loans €242.8 billion The total amount Greece owes foreign creditors, mostly public entities tenterhooks vote on future