New plan for bailout submitted by Greece

ATHENS – Sobered by reports that eurozone partners were ready to let Greece fall out of the common currency club, the Greek government Thursday delivered a new package of economic reforms to its creditors that capitulated to lenders’ demands for raising taxes and the retirement age.

The leftist leadership of Prime Minister Alexis Tsipras had just two weeks ago drawn “red lines” around pensions and state workers’ salaries to shield them from deeper spending cuts demanded by the lenders, a bold rejection that was endorsed by a healthy majority of Greek voters in a referendum Sunday.

But faced with imminent collapse of the country’s banking system and the specter of economic catastrophe and social unrest, the populist government was reported by Greek media to have yielded on the sticking points that led to collapse of previous talks on a new rescue plan. The proposals were delivered two hours before Thursday’s midnight deadline, the iEfimerida news site reported.

“The government is doing all that it can to reach an immediate deal and end this cycle of uncertainty,” said government spokesman Gabriel Sakellarides. “We are optimistic that a deal will be reached.”

The Tsipras Cabinet endorsed the new plan Thursday evening, reversing its earlier insistence that pensioners be spared any further hardship. The new reform package would push the retirement age to 67 and cut pensions by 15 percent for those who choose to retire at 62, which those with 40 years or more in government service are eligible to do.

The government also plans to withhold more tax from state salaries and pensions and to deduct a 6 percent health care premium from retirees’ checks, Mega TV and other Greek media reported.

The program of spending cuts and tax increases also pledges to boost the value-added tax on restaurant bills to 23 percent from 13 percent and end the special tax exemptions for Greek island businesses. The reforms are predicted to generate at least $13.2 billion in revenue over the next two years to service the country’s debt from $270 billion in two previous bailouts.

On Wednesday, the Greek government sent a letter to the European Stability Mechanism, a fund set up since the country first sought bailout funds in 2010, requesting immediate assistance because of the fragility of the banking system and a clear shortage of cash. The letter did not give specifics but said that the government would immediately begin to implement budget reforms as early as Monday.

Greece has been in an economic free fall since Tsipras last week called a snap referendum on the austerity measures demanded as a condition for new talks with the creditors on a third bailout. Banks have been closed and capital controls have been imposed for nearly two weeks, paralyzing the economy. Greeks cannot withdraw more than $66 a day from ATMs, and pensioners without ATM cards are allotted about $132 a week. Banks will remain closed through Monday, the Economy Ministry said.

Greeks rejoiced when a 61 percent majority in Sunday’s vote rejected more austerity measures. However, the excitement has dissipated as the reality began to sink in: If the government fails to secure new rescue loans by Sunday’s European Union summit, the spigot of assistance will be turned off and banks will run out of cash.

The apparent concessions by Athens were probably aided by a growing recognition among the creditors and eurozone colleagues that Greece’s debt, more than 175 percent of GDP, is unmanageable and needs to be reduced or rescheduled for payment over a longer period. There is also discussion on the lenders’ side of ensuring that interest rates remain low to prevent the debt burden from growing further.