PM hopes for breakthrough in talks with Merkel, Hollande in Brussels

Prime Minister Alexis Tsipras is due in Brussels on Wednesday with the key goal of meeting German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a summit of leaders from European Union and Latin American countries and achieving a political breakthrough to slow-moving negotiations on a reform deal.

Tsipras spoke with Merkel and Hollande by telephone last weekend and his office said they would meet in Brussels on Wednesday. But some European officials raised questions on Tuesday about whether the meeting would take place, citing widespread disappointment with revised proposals submitted to creditors by Athens.

In the early hours of Tuesday, the government sent two supplementary documents to creditors, one proposing how to cover Greece’s fiscal gap and the other suggesting a plan for making the country’s debt sustainable.

The immediate reaction by European officials was rather cool with some saying the documents contained ideas that have been rejected in the past. European Commission spokesman Margaritis Schinas indicated that the documents were being studied. “The three institutions are currently assessing these suggestions with diligence and care,” he told reporters in Brussels.

Other European officials expressed different levels of optimism about a possible deal. “I would say that reaching the agreement within coming days is possible,” EC Vice President Valdis Dombrovskis said. However, he called on Greek authorities to show “less tactical maneuvering and more work on substance.”

Eurogroup President Jeroen Dijsselbloem told the Dutch RTL Nieuws TV station, “I’ve heard a lot of optimism from the Greek side, and it’s an underestimation of the complexity of what’s being asked of them.”

Finnish Prime Minister Alexander Stubb also appeared aggravated. “We will do everything to keep Greece in the eurozone… but our patience is running out,” he said.

German Finance Minister Wolfgang Schaeuble told a conference organized by his conservative CDU party in Berlin that his working relationship with Greek Finance Minister Yanis Varoufakis was “OK,” adding however that the latter was “hard work.”

“We were together yesterday… we had differing views,” he said.

The updated proposals submitted by the Greek government to lenders included an increase in the primary surplus targets. Athens is now proposing a 0.75 percent of GDP surplus this year and 1.75 next year, compared to its previous offer of 0.6 percent and 1.5 percent respectively. The new proposal is closer to what lenders have suggested but still slightly short of their targets.

The Greek side continues to back the idea of three value-added tax rates, although it may raise the two lower brackets from 6.5 to 7 percent and 11 to 12, or even 13, percent. The top rate will remain at 23 percent. The bottom rate will apply only to medicines, books and theater tickets. Basic foodstuffs, fresh produce, utilities and hotel accommodation will be among the products in the middle bracket.

The government is aiming to raise around 1 billion euros from the change in VAT. Another 350 million euros is expected from the scrapping on the 30 percent reduction on VAT for Aegean islands. That means the government could raise some 1.3 billion euros from adjustments to VAT, up from 950 million euros in its previous proposals.

There are also plans to increase pensioners’ contributions to their health insurance, possibly from 4 to 6 percent of their retirement pay. That would raise around 500 million euros.