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It’s the Final Countdown for Greece—Again!

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The entire Greek debt saga (GREK) has spun out much like a Sophoclean drama over the past few months. Whether the travesty turns into a tragedy remains to be seen. The next few days are likely to be crucial as the final countdown for Greece looms yet again.

Eurozone (FEZ) (IEV) ministers gave Greece until Thursday to come up with a concrete bailout proposal. Greece worked overtime to come up with a reform proposal. It submitted its proposal just two hours before Thursday’s midnight deadline. The plan will be discussed in an emergency Eurozone summit scheduled for Sunday. The approval of Greece’s proposals will hinge on a clear enumeration of reforms that Greece will be willing to undertake.

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In a last-ditch attempt to avert a Grexit, or a Greek exit from the European Union, Greece has accepted harsher austerity reform measures than it had previously forsaken negotiations for. Greece subsequently called for a referendum. The move is surprising in light of the “no” vote from the Greek public that endorsed the government’s move to reject creditors’ proposals.

final countdown for greece

The following is a short summary of the reform proposals submitted by Greece Thursday night, as reported by The Guardian:

  • Greece aims to achieve primary surplus targets of 1% in 2015, 2% in 2016, 3% in 2017, and 3.5% in 2018.
  • Greece proposes a multitude of tax hikes to come into effect from October 2015. The value added tax (or VAT) would be charged at a rate of 23% on most items, including dining and catering. Food items, water, energy, and hotels would be charged a reduced rate of 13%. A rate of 6% would be charged on medicines, books, and theater. All exemptions to Greek islands, barring those that are the most remote, would be suspended.
  • Greece aims to cut defense spending by 100 million and 200 million euros in 2015 and 2016, respectively. The corporate tax rate would be hiked from 26% to 28%. Subsidies and preferential tax treatment meted out to farmers would be discontinued. The tonnage tax rate charged on the shipping industry would be increased, and luxury taxes would be levied at an increased rate of 13%.
  • Early retirement would be discouraged through disincentives. The retirement age would be standardized at 67 years by 2022 except for those in “arduous” jobs or mothers raising disabled children. Public sector wages would be reduced by 2019. Plans to fight corruption would be worked on.
  • Greece aims to undertake privatization of assets like regional airports and ports.

Many deadlines have come and gone in the past five months with no substantive results. However, Sunday could prove to be the ultimate moment of truth for the debt-beleaguered nation. Hopes of a deal have been revived with the reform agenda that has been tabled with Eurozone creditors. However, a political whorl could ensue with the harsher austerity package that the Greek government has agreed to.

How did Greece get here? What drove the Greeks to vote “Oxi”—”No”? What does a Grexit mean for the Eurozone (EZU) (VGK) and the global markets at large? What are the options for Greece if it does exit the Eurozone? Is there a way to reverse the damage? We’ll be exploring the answers to these questions in this series.

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