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Creditors and Greece edging closer to a deal

With the clock counting down to the June 30 deadline in would appear that the proposal made by the Greek Government over the weekend has added new impetus into the debt negotiations.

On June 30 the current bailout programme comes to a close. If the Government of Alexis Tsipras can reach an agreement by this date then the final tranche of EUR 7.2 billion will be released to it.

This payment will enable the Greek Government to fulfil its obligation to the IMF and make a payment of EUR 1.6 billion.

The new proposal which was submitted by the SYRIZA administration has offered some concessions to the Eurogroup and IMF. These concession include new taxes on the well off and businesses and selective increases in VAT. However the red lines of no reductions in Public Sector wages and Pensions remain.

The current proposal will undoubtedly help in contributing a budget surplus but the idea of hitting the higher earners and businesses could have a retrograde effect in the long run. The new taxes could lead to the brightest minds leaving the country and profitable businesses transferring their tax obligations to lower cost centres.

A move to encourage business and entrepreneurship by the rewarding and not penalizing success should have been sought. This policy that has been adopted by recent Conservative Governments in the United Kingdom with a great deal of success and was a key component of an economic policy which led to a revival of the United Kingdom’s economy.

Unfortunately the Greek Government has found it hard to release itself of the shackles that ties it to its far left roots. In the spirit of compromise having a proposal be it a mediocre one agreed upon will avert the current crisis.

It is hoped however that post June 30 that the current Greek Government could begin to adopt more business and investment friendly policies. This would go hand in hand with a thorough review of the public sector and pension system. Furthermore there needs to be a commitment to bring the privatizations of state enterprises that is now on hold back on track.

In exchange for the above the creditors will offer much needed and overdue debt restructuring.

Tuesday, 23 Jun, 2015 / 10:44

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Source : http://academy.acfx.com/market-briefing-london-open-23-06-2015/

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