Greece submitted a new bailout plan, which will be studied by Eurozone officials over the weekend. What does it mean for the never-ending Greek debt-crisis?

The Greek tragicomedy continues. First, the Greek government rejected the creditors’ bailout proposal and announced a referendum on a no longer existing proposal for an expired program. Basically, the future of the Eurozone was brought into question due to different opinions on the appropriate VAT for restaurants and hostels. Now, it sent to the creditors a new proposal, which looks more severe than the proposal rejected by Sunday’s referendum. Does it all make sense?

According to the draft, the Greek government would run a primary budget surplus of 1 to 3.5 per cent of GDP until 2018. It would implement changes to VAT to raise a full 1 percent of GDP. In particular, it would scrap discounted VAT rates for Greek islands and unify the rates at a standard 23 percent rate, including restaurants and catering. No need to say that rising taxes in the middle of a recession would be lethal for the economy.

What is perhaps most important is that Athens made also some important concessions on pensions and agreed to increase the retirement age to 67 by 2022 and to phase out solidarity grants (EKAS) for the poorest pensioners a year earlier than planned.

Of course, there is a catch. In return, Greece is seeking a three-year loan deal worth €53.5 billion, much more than earlier. It seems that Greece wants also the €35bn investment package promised by Jean-Claude Juncker and a ‘regulation’ of debt. Now, the new-old plan has to be approved by creditors and Eurozone finance ministers, as well as by leaders meeting at an EU summit on Sunday.

So, what happens next in Greece? Today, the Hellas has to refinance €2 billion euro in T-bills, on July 13 it has to pay €450 million to the IMF, and on July 20 it needs to repay about €3.5 billion to the ECB. It will be another significant ‘judgment day’. If the creditors accept the plan over weekend and the agreement is reached, the new third bailout program will be negotiated and a bridge loan provided. If the agreement is not reached, the ECB will eventually suspend the ELA, which will made Greek banks insolvent. Greece will then probably have to abandon the euro and exit from the Eurozone.

To sum up, the Greek tragicomedy continues as the new bailout plan submitted by the Greek government is pretty close to the one 61 per cent of Greeks voted ‘OXI’ against. Everything now depends on the coming EU summit and the ECB’s actions. If the plan is not accepted or the ECB cuts financing, the gold prices may rise, although a stronger U.S. dollar may be a headwind.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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