Hiking taxes in a depression is one of the stupidest things one can do, but Greece is set for another vote to do just that.
Prime minister Alexis Tsipras is once again prepared to kiss German Chancellor Angela Merkel’s behind, and his party will likely go along for the ride.
The wildcard IMF has yet to chime in on the economic stupidity of this hike.
Greece’s parliament is expected to vote late Sunday on a raft of fresh taxes and austerity reforms that the country must legislate to unlock further rescue loans, ahead of a crucial eurozone finance ministers meeting on Tuesday.
The bill includes the last portion of an austerity package worth €5.4 billion ($6.06 billion), or 3% of the country’s gross domestic product, which Greece has agreed on with its international creditors to implement by 2018 in exchange for fresh bailout funds under the terms of its third bailout deal.
The IMF has said it would only sign up to the Greek bailout if Germany agrees to debt relief. But German officials are seeking to delay any debt restructuring until the end of the current Greek bailout program in 2018, so that Germany’s parliament, the Bundestag, would pass such measures only after Germany’s 2017 elections.
To meet its targets, Athens was asked to set up a “contingency mechanism” of additional austerity measures worth some 2% of GDP.
The measures being voted on Sunday include new taxes on fuel, tobacco, alcohol, Internet, pay TV, hotel stays, cars, changes in property tax, as well as a rise in the basic value-added tax rate, applied to most goods and services, from 23% to 24%.
The Greek parliament is also expected to vote on the fiscal brake mechanism that would automatically cut state spending if Greece misses its budget targets.
How much the next bailout tranche would be is still to be determined, but European Union officials indicate it could be €10 billion.
Another Humiliating Greece Cave-In
My comment: “Greece has caved in every time, and in the most humiliating ways. Greece even caved in on pension cuts last week. Why should anyone believe Greek demands now?”
€10 billion would be a lot of money, if the money went to Greece. But virtually none of it will go to Greece.
Somehow I expect the next tranche to be a “greater than expected” €11 billion. Perhaps €10 billion will suffice if Greece has €1 billion of its own to pony up.
Greece Long-Term Debt Timeline
Payments to the Troika stretch all the way to 2059, while assuming Greece can maintain a primary account surplus of 3.5% the entire way.
The IMF says this is impossible, while proposing a surplus of 1.5%, also impossible.
Politics of Debt Relief
The IMF wants debt relief now, but Germany wants the IMF to hold off until Merkel wins reelection.
Meanwhile, the Greek depression resumes.
These tax hikes are insane. The key question remains: Is the IMF bluffing about debt relief or not?
Mike “Mish” Shedlock