Greece Will Raise Taxes to Avoid Default
The government of Greece made an about-face Sunday, agreeing to impose a two-year, $2.7 billion property tax in order to reassure European creditors and secure new aid to avoid a debt default. But that doesn't mean that a default by the most deeply troubled state in the European Union is off the table.
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Creditors had walked out of discussions with Greek officials last week, and the country's fiscal pressures grew increasingly dire over the weekend, the Financial Times reported, and company officials "warned that they would be unable to pay salaries and pensions next month if the €8bn EU-IMF aid payment fell through."
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The next installment of the loan will be secured through a levy on electric bills, the FT reported, bypassing what officials have said are problems with tax collection.
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The government's calculations have to be balanced against continued popular resentment of austerity measures. The government has resisted moves "that would deepen the recession, which it blames for its inability to meet this year's deficit target of 7.6% of gross domestic product," The Wall Street Journal reported.
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It forecasts a deficit of around 8.2% of GDP, and argues that existing measures are enough to close the gap.
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The troika sees the deficit at 8.8% this year and is asking Greece to take an additional €1.7 billion of new austerity measures.
But the government is also balancing anger on the streets. On Saturday, thousands of Greek workers, students and ordinary citizens angry over the reforms protested in Thessaloniki.
Those protests turned violent when several hundred of those demonstrators clashed with riot police who fired tear gas to drive back the protesters, which included labor unions, students, anarchists, taxi owners and even fans of a local sports club.
Now, having made the moves that its lenders wanted, at the risk of popular outcry, is the government more secure from default? Not according to the quotes in this Bloomberg piece. The lede is a nice place to start: "Germany may be getting ready to give up on Greece."
“It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”
