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Greece beats deadline, offers reform plan that yields to lender demands

 
A demonstrator waves a European Union flag in Athens. Greece delivered a reform plan that yields to lender demands Thursday.
A demonstrator waves a European Union flag in Athens. Greece delivered a reform plan that yields to lender demands Thursday.
Published July 10, 2015

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, 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," government spokesman Gabriel Sakellarides said. "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.

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.

The Greek reform plan will have "to be matched by an equally realistic proposal on debt sustainability from the creditors," European Council President Donald Tusk said Thursday. "Only then will we have a win-win situation. Otherwise, we will continue the lethargic dance we have been dancing for the past five months."