Greece: Greece presents new reform plan in hopes of securing desperately-needed cash
March 30, 2015
On 27 March, Prime Minister Alexis Tsipras presented Greece’s newest reform plan to Eurozone leaders and the IMF in an effort to unlock desperately-needed funds and avoid bankruptcy. The new economic plan follows tense negotiations over Greece’s future in earlier weeks and includes previously-discussed measures to crack down on corruption and tax evasion as well as honoring the privatization sales that have already been completed. In the latest version of the plan, which was debated with troika representatives and creditors over the weekend, Tsipras also conceded to retain an unpopular property tax in the plan and increase the value-added tax for Greek islands. The Greek government says its plan will help raise EUR 3 billion of revenue and generate a 1.5% primary budget surplus this year. However, the proposal did not touch on reforms to the pension system or labor laws, two areas which Eurozone leaders insist must be overhauled. A four-month extension of Greece’s EUR 240 billion bailout program was approved by Eurozone finance ministers on 24 February, although no new funds have yet been dispersed. Eurozone leaders have stipulated that Greece will have to outline a comprehensive reform plan and fulfill the conditions to receive the extension funds. Further talks are planned for this week, but it is not clear if the latest proposal will be enough to seal a deal nor is it known when new funds might be released.
Tsipras’ move comes amidst increasing uncertainty over Greece’s future. The country’s finances have depleted and Greece has a number of payments due in the upcoming weeks, including a EUR 467 million loan repayment to the IMF on 9 April and EUR 6.7 billion due for maturing bonds in July and August. On 25 March, the European Central Bank (ECB) raised the amount that Greek banks can borrow from EUR 69.8 billion to EUR 71.1 billion extending a small lifeline to the country’s finances. However, the European Financial Stability Facility denied Greece’s appeal for cash on the same day, and Eurozone leaders have reiterated that Greece must commit to reform to earn funds. Moreover, Tsipras faces a tough road ahead even if Greece does receive additional funding. Tsipras campaigned on an anti-austerity platform and his coalition government has had to compromise on some key campaign pledges in the reform plan. Hard left-wing members of the coalition have criticized the government’s actions and there is a risk of political gridlock or snap elections if they oppose Tsipras’ policies.
Looking forward, Greece’s outlook is deteriorating. The government must walk a tight-rope between balancing anti-austerity campaign promises and satisfying creditors’ demands for reform. On the extreme side, the possibility of another snap election or even a ”grexit’” from the Eurozone still pose a large downside risk. Against this backdrop, FocusEconomics Consensus Forecast panelists revised their projections for 2015 downward this month. Panelists foresee a 1.0% expansion, which is down 0.6 percentage points from last month’s forecast. For 2016, the panel expects growth to pick up to 2.4%.