In a surprise move, Greece's creditors made a new compromise proposal on Friday. The document, leaked to the Financial Times, makes significant changes to bring the negotiating positions of creditors closer to that of the Greek government.
European leaders told eurozone finance ministers to conclude a debt financing agreement with Greece over the weekend, just days before Athens has to meet a crucial repayment deadline that carries the risk of bankruptcy and euro-exit. A deal on a draconian austerity package is vital for creditors to unfreeze 7.2 billion euros in bailout money that would get Prime Minister Alexis Tsipras off the hook for the time being. "Leaders expect the eurogroup to conclude this process at their meeting on Saturday," EU President Donald Tusk said early Friday, after chairing a summit in Brussels.
Earlier on Thursday, a meeting of eurozone finance ministers broke up over a disagreement on the Greek rescue package, intensifying doubts about whether Athens can pay the International Monetary Fund debts worth 1.6 billion euros next Tuesday.
"European history is full of disagreements, negotiations and at the end, compromises," Tsipras said. "So, after the comprehensive Greek proposals, I am confident we will reach a compromise."
Tsipras seems right to be confident. After refusing Greece's proposals, the creditors declared their own compromise proposals. Major concessions have been made on pension reforms. A Greek government program that gives extra money to poorer pensioners was to be scrapped, according to Athens' proposal, by 2020. Creditors had asked that it be ended by 2017 but now they are willing to wait until 2019. The creditor proposal also permits raising the contributions pensioners must make toward health care from 4 percent to 6 percent, which was another Greek government demand. Major concessions have been made on value-added tax as well. Creditors have now accepted the Greek government proposal of three separate VAT rates, including a low rate of 6 percent for pharmaceuticals, books and the theater, which creditors had previously rejected. Creditors have also accepted a 13 percent VAT rate on electricity, which they had refused before.
The new offer from creditors also accepts an increased corporate tax rate of 28 percent, close to the Greek government proposal of 29 percent.