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Greece-Creditors Make No Progress After Third Day of Negotiations

Creditors on Thursday did not accept the Greek proposals for countermeasures and insist that Athens must take additional measures amounting to 2% of GDP in order to reach fiscal targets.
The Greek side argued that it has exceeded budgetary targets in 2016, therefore the bailout program is on the right track and no additional measures are needed beyond 2018, when the program ends.
However, lenders, and the International Monetary Fund in particular, consider the 2016 performance as coincidental and based only on overtaxation and cannot be repeated in 2017 and 2018. Thereby, additional measures will be needed, estimated at 2% of gross domestic product, or 3.6 billion euros.
Creditors argued that overtaxation has reduced the ability of households and businesses to pay their taxes, resulting in increase in debts to the State and individuals. At the same time, the tax base is narrow and there is also a relatively low level of tax compliance.
Furthermore, creditors consider that the savings of 1% of GDP presented is the result of the delay in implementing the new pension laws and delaying to hand out pensions to new retirees. Furthermore, they asked for clarifications on the new security “super fund” (EFKA) and its operation in order to have a better picture of the pension expenditure beyond 2020.
As regards the countermeasures proposed by the Greek side, the institutions seemed to accept in principle measures to reduce non-wage costs to businesses and freelancers.
However, they asked for clarifications about reduction of value added tax on transport and energy. Specifically, they asked to learn more about how the particular measures could bring more job positions and help businesses.
Creditors disagreed on proposed VAT reductions on packaged foods and the elimination of participation of the state-insured to prescribed medicines. They said that these measures are welfare policies and not aimed at economic growth.

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