Greek parliament approves further austerity measures in bid for bailout funds

23 May 16

Greece has passed yet another round of austerity measures in the hope of securing the release of much-needed bailout funds from its creditors.

The latest budget cuts and tax rises, seen as even more painful than the far-reaching measures approved earlier this month, come ahead of crucial meeting of eurozone finance ministers tomorrow.

In an effort to satisfy creditors ahead of the meeting, lawmakers in Athens approved the bill with 153 votes to 145. It will usher in VAT increases, taxes on coffee and the sale of public property, moves that are widely unpopular among the opposition and the public alike.

However, the bill’s passage should unlock at least €5bn in bailout cash that will prevent Greece from defaulting on €3.5bn in debt repayments due this summer.

It has been suggested that the amount given to Greece could in fact rise to €11bn at tomorrow’s meeting, where lenders have indicated they will disburse the much-needed loans.

The bill reflected some of the final demands of creditors, namely Germany and the International Monetary Fund, including the creation of a privatisation fund that will take control of public real estate for 99 years.

Overseen by EU officials, the fund will work to sell more than 71,000 pieces of public property to generate collateral for the €250bn in bailout loans Greece has received since 2010. Half will be used to pay public debt and the rest will go towards growth-enhancing investments.

VAT will be raised from 23% to 24%, indirect tax measures will be implemented in order to raise around €1.8bn by 2018 and there will be higher levies on beer, coffee, gaming, hotels, TV, telephone bills and tobacco.

The government has also agreed to legislate a contingency mechanism which will be activated if Athens misses the fiscal targets set by its creditors – targets which have been deemed by many, including IMF managing director Christine Lagarde, as unrealistic.

The targets include a 3.5% primary budget surplus, excluding debt repayments, by 2018. If missed, the mechanism will impose spending cuts of up to 2% of economic output dependent on the size of the shortfall.

Greece’s government and its creditors now all seem to be on the same page about the “prior measures” necessary to secure the release of the next trance of funds from Greece’s third, €86bn bailout programme, after months of dispute that threatened to plunge the country back into crisis.

However, the issue of relief from Greece’s colossal debt, which stands at €321bn or 180% of GDP, remains hotly contested, despite all sides conceding this is unsustainable.

The IMF stirred further discord last week by suggesting lenders defer Greece’s loans until at least 2040, or 2080 for European loans, with grace periods of 17 years for some.

Its public debt sustainability report for the country said that if none of its proposals are taken into account and no debt relief is provided then the country’s debt will soar to 293.6% of GDP by 2060.

Following their last meeting, eurozone finance ministers agreed to examine debt relief for Greece, but said this would not entail any form of write-off and would not be discussed properly until the country’s current bailout programme expires in 2018. 

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