Greek groundhog day

So the negotiations with Greece are like groundhog. The talks go on and on, get nowhere, and repeat again.

According to the latest news, Greece and its creditors have reached agreement on some points but differences remain. The crunch issues are around further cuts to pensions and increases to value-added tax. Creditors insist these will be central to meeting budget targets and bringing Greece’s finances onto a sustainable path. The ruling Syriza Party won’t cut pensions and questions why it has to raise VAT.

Greek Prime Minister Alexis Tsipras says demands by the euro area and the IMF for cuts in the income of poor pensioners and increases in value-added tax on power are unacceptable. These are the red lines in Greece’s stance since his anti-austerity Syriza party swept to power in snap elections in January.

“Ideas like cutting benefits for low-income pensioners, or raising the VAT rate for electricity by 10 percentage points, can’t be a basis for discussion,” he told Bloomberg.

The hardest part for Greece is the lenders’ demands that pension payments to be cut by 1 per cent of GDP. However the deal on offer is reported to say that if Greece does not want to hit pensioners it must hit somebody else, again by 1 per cent of GDP. And besides, one has to question raising the VAT for a country that has trouble with tax evasion.

There is no debt relief in what the troika is offering and there is no guarantee Greece will not face tougher terms in July, when negotiations on the main debt restructuring have to begin.

The bottom line is that Greece won’t be able to export itself out of depression. A country where family incomes have fallen by up to 40 per cent cannot produce growth.

This is an unsustainable deal, particularly with a country that has to deal with a 145 per cent increase in the number of Syrian refugees coming across from Turkey.

The Greek tragedy will continue for years to come.