A day after eurozone finance ministers urged Greece to speed up discussions with its lenders, Prime Minister Alexis Tsipras held a cabinet meeting on Tuesday to brief his ministers on the state of talks.
Tsipras talked about the range of issues that are still being debated with the institutions, including differences over pension cuts and value-added tax reform.
According to government sources, the lenders are now demanding that Athens adopt two VAT brackets, a lower one of 10 percent and a higher one of 20 percent, in order to close the growing fiscal gap for this year.
The institutions also seem to be sticking firmly to their position that the government should immediately stop early retirements and make cuts to high supplementary pensions. There is also pressure from the lenders for the coalition to adopt straight away the so-called zero deficit rule for pensions, meaning the state should no longer subsidize retirement pay. Athens is trying to delay the implementation of this measure.
A European Commission report published on Tuesday indicated that a number of factors, including its declining population, will contribute to Greece having one of the largest annual outlays on pensions in the European Union in proportion to its economy. Despite changes over the last few years, Greece’s spending on pensions is only expected to drop 2 percentage points from 16.2 percent of GDP by 2060.
It appears there has been greater convergence on the issue of labor market reform. The lenders seem to have agreed to the government’s requests for collective wage bargaining to be restored. The two sides are apart, however, on when collective contracts can be adopted again. Greece wants this to happen straight away but its creditors do not want anything to change before the end of the year at the earliest, sources said.
Nevertheless, Tsipras is said to have assured his ministers on Tueday that an agreement can be reached with creditors by the end of the month.