According to Kathimerini, an email sent to the Finance Ministry by European Commission representative Matthias Mors, and leaked in the Greek media yesterday, referred to the troika’s doubts about the credibility of the government’s plan for overhauling the three firms while they are still in operation. Instead, the troika proposed liquidation for EAS and ELVO and, in Larco’s case, the possible splitting of the firm into two before its attempted sell-off. “The proposed restructuring plans are in our view not viable or realistic,” the e-mail said. “In our view, the option of closure/liquidation must be considered for all three companies,” it added.

Earlier in the day, Finance Minister Yannis Stournaras said the liquidation of the companies over a period of five years would “be more valuable to the state” than bankruptcy. He said the government would try to avert a scenario involving staff being laid off without compensation, claiming that “at least certain parts of the businesses are valuable.”

Enet.gr presented the text of an email sent by the troika to the government rejecting the latter’s proposals to restructure state-owned Hellenic Defence Systems (EAS), Hellenic Vehicles Industry (Elvo) and mining company Larco.

The email was sent my Matthias Mors, the European Commission’s representative in the troika, to the ministries of finance and defence on Monday evening. The email has as follows:

“Thank you very much for forwarding the restructuring plans for the three companies. Please find a detailed reaction from our side with the conclusion that the proposed restructuring plans are in our view not viable or realistic and do not guarantee a sustainable solution from the economic efficiency, budgetary and state aid points of view. In our view, the option of closure/liquidation must be considered for all three companies (as reflected in the language of the MEFP/MoU [Memorandum of Economic and Financial Policies/Memorandum of Understanding] and the public announcement in July). In this context, any liquidation should not be conditional on indemnities going beyond legal requirements or on a redeployment of the work force.

LARCO: Our main concern for LARCO is that in your proposal the tendering processes for the two asset clusters are not fully independent from each other (for the privatisation of the smelter and the mines, respectively), thus involving business continuity without addressing the fundamental state aid concerns (the transaction is structured in such a way that there is a high probability that the same investor will acquire both tendered assets and will thus be liable to pay back the State aid). Moreover, the potential investors are required to maintain employment in an over-staffed organisation that has been loss-making since 2008. This is an objective which is not commensurate with long-term viability of the company and is creating additional financial risks.

The alternatives for the government should be either to sell the asset and expect from the buyer to pay the state aid back (as mentioned in the Almunia-Rehn letter) or to sell separately the Agios Ioanis/Larymna concession and the remaining Larco assets in an unbundled fashion, without giving the investor any specific option to acquire all assets or liquidate them otherwise (if they do not find buyers). In this context, the assessment of the alternatives would be facilitated if you could provide us with pre- and post-restructuring financial accounts.

HDS [Hellenic Defence Systems, EAS]: You are envisaging EUR 144 million of State funds to the military activities that would result from the split between civil and military activities of HDS, additional to the already inherited liabilities from the past. The proposal is basically calling for a rather generous early retirement and exit scheme, which would have implications in terms of fiscal space and the programme. Given the fiscal space constraints and the dependence of the company on domestic orders, we believe that this is not a viable solution and the company should be liquidated. If a case could be made from a national defence objective perspective, this has to involve a substantially downsized/restructured company which is domestically oriented. It has to be seen whether at such lower scale (given lower revenues but possibly high fixed costs) it makes sense from an economic point of view to keep the company on the market or whether one should just to proceed with outright liquidation.

ELVO: The special liquidation plan is more costly compared to bankruptcy. For example, if the company is liquidated EUR 13.5 million are needed for severance payments; however if the company continues to function under special liquidation regime it will need EUR 27.5 million to run operations until the conclusion of the current backlog contracts.

The assumption in your analysis that the shareholder’s losses will stop upon the completion of the backlog contracts and that the company may win further contracts allowing thus the completion of the development plan is not realistic and does not guarantee any security related to the viability and future of the company. In conclusion, we consider that an outright bankruptcy of the company is the most desirable and realistic solution.

We look forward to receiving a new improved version of the restructuring/liquidation plans for the three companies, which take into account our comments/suggestions.

Best regards, Matthias”

The draft, which must be approved by all three party leaders before it is submitted in Parliament next week, sets out less harsh increases to income tax than an earlier ministry proposal, according to Kathimerini.

According to the final tax bill it includes:

- Increase in the annual levy paid by self-employed professionals/freelancers and businesses from EUR 500 to 550 – 650 and from EUR 900 to 1,000 respectively.

- According to the plan, incomes of up to EUR 25,000 will be taxed at a rate of 21%, incomes between EUR 25,000 and 40,000 at 36% and incomes over EUR 40,000 at 40%.

- The income tax-free threshold of EUR 5,000 will be abolished and a EUR 1,950 reduction in taxes introduced for those earning up to EUR 18,000 per year. This reduction will be smaller for higher incomes, according to Kathimerini.

However, according to AMNA, the new tax system will raise the tax-exempt ceiling for wage earners and pensioners from EUR 5,000 to 9,000, with all taxpayers earning annually up to EUR 25,000 enjoying significant cuts in their tax burden.

- The government will also reportedly introduce a tax rate of 10% for income from leasings or rentals.

- Families with more than three children, the current annual tax break of EUR 528 per child will drop to EUR 450 per child, plus EUR 40-50 per month per child, as part of a government policy to support Greek families. It will also be the first time that families with one or two children will receive a tax break.

- The government also will raise a savings tax from 10% to 15. Finally, the corporate tax is expected to drop from 40% to 32.8%.

Coalition government partners, PASOK and Democratic Left have expressed concerns about some aspects of the bill.

Samaras yesterday evening presented government’s goals as regards the new tax legislation in a speech at the annual conference of the Hellenic American Chamber of Commerce.

According to the Premier, these goals are lower tax rates, a more simple taxation system, broad use of new technologies and cracking down tax evasion.

Samaras dismissed news reports of a 45% taxation on incomes exceeding EUR 26,000. “This is against my principles, I stand by the middle class,” Samaras noted. According to AMNA, he said that the new taxation system would be relieving to earners of up to EUR 25,000, while the government intents to introduce a special benefit for families even with one child, but based on strict income criteria so as to support only those in real need. Lower tax rates would have to be achieved gradually, the premier said.

Samaras is expected to go over the latest tax proposals with Stournaras on Wednesday, who returned on Tuesday from Brussels, where he had attended a summit of eurozone finance ministers. The draft is believed to include increases in income tax for the middle class but tax breaks for families with children, according to Kathimerini.

In a related development, an Athens court deemed a special property tax collected through electricity bills as “unconstitutional” and “anti-social”. The ruling can be appealed but until it is, the Public Power Corporation will be unable to cut the electricity supply of those who do not pay their bills.

Prime Minister Antonis Samaras spent the weekend at Maximos Mansion, where he chaired a “mini” cabinet meeting at his office to prepare for tomorrow’s Eurogroup meeting, meeting all loose ends in terms of necessary legislation for the implementation of the new austerity package. The meeting was attended by the ministers of finance, development, education, administrative reform, tourism, health and labour.

According to Athens News Agency, the agenda for the meeting covered all details that must be dealt with immediately under Greece’s commitments to the troika, including small changes to aspects of the omnibus bill outlining austerity cuts and structural reforms passed by Parliament last week, in order to further clarify points on which the troika has doubts and objections.

Also discussed were a number of joint ministerial decrees that are to be tabled in Parliament for a series of issues. Today, the General Secretariat of the Government will table a legislative act including all these changes, so that there are no glitches in tomorrow’s talks with Eurozone finance ministers.

With a crucial Eurogroup summit due to take place in Brussels tomorrow, when Greece hopes to get at least initial approval for the release of vital rescue funding, Prime Minister Antonis Samaras has been focusing on projecting a united front to the country’s foreign creditors despite continuing upheaval within his coalition, Kathimerini writes.

The approval of new aid -likely to comprise three installments “bundled” into a EUR 44 billion loan rather- remains the top priority for the Premier. But sources indicated that a final decision on new funding is unlikely to be taken until the end of this month due to an ongoing dispute between the IMF and Germany regarding the funding gap created by a two-year extension granted to Greece to achieve fiscal adjustment targets and over how the country’s huge debt can be made sustainable.

In the meantime Samaras wants his ministers to proceed with the “prior actions” demanded by the troika, including an overhaul of the tax system, the creation of a committee to oversee the budget execution and the acceleration of privatizations.

According to protothema.gr, some of these measures are: cuts (12%) of special payrolls for judicials, academics, state doctors. Amount saved could reach EUR 1 billion if the measure includes military personnel, although the government is looking for an alternative equivalent measure; additional pension cuts of EUR 300 million; EUR 500 million cuts in pharmaceutical costs of insurance funds; privatizations of Popular Lottery SA (Laika Lacheia), IBC Olympic venue, DEPA and DESFA, which could bring over EUR 1 billion euros by the end of the year. If Elliniko is sold too then the final amount may be considerably higher.

The Finance minister said the troika will return to Greece on July 24 and the Greek government will discuss the possibility to replace some measures with others of an equivalent effect, in terms of deficit impact.

EU Council, in its recommendation on Greece argued, inter alia: “…The release of the tranches is based on compliance with quantitative performance criteria and a positive evaluation of progress made with respect to the policy criteria laid down in Council Decision 2011/734/EU of 12 July 2011 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit1 (as amended on 8 November 20112 and 13 March 20123) and the Memorandum of Understanding on Specific Economic Policy Conditionality, which was signed on 14 March 2012…”

Speaking to reporters after the meeting of the EU finance ministers, FinMin Yannis Stournaras said that his eurozone colleagues were inflexible concerning the implementation of measures in Greece in 2012. According to ANA, he confirmed that he did not submit a request for an extension to the country’s bailout program, expressing his confidence that “when the time comes (the request) will be made”.

In an interview with CNBC in Brussels, Stournaras said no decision on the matter had been taken at Monday’s meeting of euro zone finance ministers, because it was still unclear what such an extension would mean in terms of financing for the country.

“They [the troika] ask us to bring the program back on track before anything else. So the situation is quite difficult, it’s not easy,” Stournaras told CNBC. He believes that, “privately,” everybody accepts that an extension is reasonable. “Certain difficulties, which we should clarify with the troika in the weeks to come. So we definitely have indicated that we are going to raise this issue,” Stournaras said. He expected a decision “towards the autumn.”

Speaking at a press conference in Brussels Juncker also said that the new Greek Finance Minister Yiannis Stournaras “did not make any requests during tonight’s Eurogroup meeting” as far as funding is concerned.

According to Euronews, Stournaras presented the fiscal situation of Greece and reiterated the government’s commitment to stick to fiscal consolidation and “take the necessary measures to get the programme back on track” Juncker said.

As for the E3.2 billion worth of Greek bonds that expire on August 20, Juncker appeared confident that a solution will be found. “There is no need to worry about Greece’s obligations” he said, without giving specific details.

Back in Greece, troika representatives are pushing government to stand by its commitments to further cut the pay of to 200,000 public-sector doctors, judges, priests, university professors and diplomats under the terms of the bailout agreement – or find additional savings of EUR 600 million by the end of next year, Kathimerini writes. The cuts would eliminate dozens of benefits and alter the method of salary grading. Initial government comments indicate that low-paid public sector staff members would be protected.

The memorandum details 12% cuts starting in July, which aim to save EUR 200 million this year and EUR 400 million in 2013. The measure could be retrospective cuts from June, according to media reports.

According to Kathimerini, Government officials have reportedly attempted to convince the troika representatives that alternative measures could provide similar budget cuts. However, the debt inspectors have repeatedly said that no further loan installments will be authorised until fiscal adjustments are made and that there will be no change to the overall memorandum targets.

They both assumed the leadership of their historic parties at the end of different political eras, thus both had the opportunity to enter the mainstream on their own pace and mark their way towards the top, i.e. the Premiership of the country. They both succeeded, through quite similar paths.

George Papandreou assumed the leadership of PASOK from his father’s adversary Costas Simitis who led a reformist movement that delivered much less than it promised. The latter’s landmark moment was Greece’s accession in the EMU, something that ten years later many Greeks considered a drag. Now it is clear that, although many euro area members may have doctored their statistics to fit the Eurozone dress, Greeks ended up embracing the scheme, building up our very own fallacy.

This is not of the last decade’s however. Systemic malfunctions were built back in the 1980s when Andreas Papandreou institutionalised budget deficit as a national policy. In the years that followed, all signs pointed towards a looming ending. Even the new FinMin Yannis Stournaras, when he was taught economics by legendary academic Constantine Drakatos, he already knew that there was not even a chance traditional Greek-style economic policy to prevent the national economy from taking a fall. Short periods during which the fundamentals of the economy were turning towards the positive, due to increased consumption and internal borrowing made nothing than deteriorating the misleading notion of progress.

During Karamanlis 2004-2009 governance, the countdown of this era began. Admittedly, it was the first real opportunity Greece had to change course and move away from the destructive path drawn by party politics, corruption and extreme clientelism. It was a period during which Greek economy’s tremor started; most importantly, it was a period during which Greeks lost the last remaining iota of trust towards Greek politicians.

This opportunity was lost. During the Karamanlis administration, Papandreou has been very difficult as an opposition leader, putting up strong fights against the then Prime Minister and the centre-right administration, who had adopted a minimum risk approach that turned it into a sitting duck. If Karamanlis government had a slim chance to produce tangible results, G. Papandreou’s populism killed it. That period will be recorded in Greek history as a period during which the country kept burning several billions of borrowed money, next to torched forests and Athens historical buildings that went ablaze in the 2008 riots.

Then, in October 2009 George Papandreou became Prime Minister and Antonis Samaras picked up the conservative party in ruins.

It was at that moment when the God of Greece turned George and Antonis into two sides of the same coin, in a process sometimes known as “Schumpeter’s gale.” Economic history tells us that Austrian-American economist Joseph Schumpeter adapted it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. At its most basic, “creative destruction” describes the way in which capitalist economic development arises out of the destruction of some prior economic order.

Both stages are essential in order to reach the end game, which in the case of Greece has to do with the drastic transformation of they way we do things in the country; economic and business mentality, social interaction and development, individual and collective responsibility and accountability.

George came in for the destruction; to fight the past, impose the concept of change the hard way; widespread pain and horizontal austerity action that shocked Greeks and made them start thinking. He brought into surface all the things Greeks used to hide under the mattresses. Neo-Hellenic illnesses strongly embedded in the daily life of citizens, amongst them what Princeton’s professor Stathis Gourgouris called “a propensity for disorder.”

To fix the Greek economy and conclude the capitalist cycle, major distortions had to go. The destruction process began based on two parametres: 1) things in Greeks’ daily life will not be the same again, since the mother-State had nothing more to give and 2) old incomes and previous generations’ benefits had to fade away to save Greece’s youth.

The process was harsh and George died (politically) in the trenches. Interim procedures were activated with Lucas Papademos stabilizing the field and Panayiotis Pikrammenos neutralizing the political passion.

Then Antonis came in for the second phase, to orchestrate the creative part, stepping on a smoother pathway, after all the reactions, political juxtaposition and pathos were tamed.

Reconstructing Greece requires the ability to synthesise necessary policies through sound leadership. In the creative destruction process, his predecessor delivered the first part and history will have its say. We need Antonis to appear creative and finish the job.

Dr. Demetris Kamaras is the Editor of AlYunaniya.com

According to Kathimerini, the Prime Minister will present the four key “axes” of the Greek proposal to the troika: the restriction of hirings in the civil service to 1 for every 10 departures, the transfer of civil servants to other parts of the public sector instead of their inclusion in a labour reserve scheme, the implementation of an ambitious programme for privatizing state assets and the adoption of certain measures to relieve citizens such as allowing them to pay taxes in installments.

The debate on the government’s policy programme will start on Friday afternoon in parliament and will conclude at midnight on Sunday with a vote of confidence.

Coalition parties’ executives (instead of party leaders as originally planned) met yesterday and agreed on the programmatic statements of the government. The discussion will continue today, Thursday when they are expected to draw up the final text. According to protothema.gr, they discussed all the critical issues such as privatizations, labour, and redundancy in the public sector. There is agreement among the three that they need to accelerate structural reforms, privatizations, concessions, deletions and mergers of public services. They also agree in denying the layoffs in the public sector and further lowering of the wages in the private sector. They also talked about a future revision of the Constitution and issues such as immigration and battling crime. Sources told Kathimerini that the government is to propose privatizations that can happen quickly, strategic partnerships in public enterprises and the merging of various state organizations.

The issue was discussed, according to reports, during a meeting at the Prime Minister’s residence in Athens on Saturday evening, ahead of a troika visit today or Tuesday. The meeting also examined the government’s programmatic proposals that will be presented to Parliament probably from on coming Thursday, July 5.

As protothema.gr writes, the government is feverishly preparing for the meetings of the next few days, which will lay the foundations for the economic development of the country, the opportunity to renegotiate the memorandum and the ability of Greece to benefit from the significant changes in the Eurozone economic policy that resulted from the last summit in Brussels.

Talking to Kathimerini, ECB Executive Council member Jörg Asmussen, pointed out that the Troika are willing to discuss changes in aspects of the implemented policy under the condition they will not upset the final goals.

IMF said a fact-finding staff visit, led by Mission Chief Poul Thomsen, is expected to arrive to Athens early this week as part of the joint mission with the European Commission and European Central Bank. This mission will assess the recent economic developments, and meet with the new authorities. This visit would then be followed by a negotiating mission to discuss with the authorities the policies necessary to achieve the program objectives.

“We want to listen to the new government, to the new authorities and what they have to say. The objectives of the programme, as agreed, remain the basis for those discussions. But, as we’ve said before, if the new government has ideas on how those programme objectives can be achieved, then we are open to those discussions — as we are, indeed, in any of our programmes that we support… it’s a step-by-step process here: first the fact-finding, then followed by a negotiating team that will focus on the issues that have been discussed with the new government. We want to wait for that before going much further into specifics,” IMF Spokesman Gerry Rice told a news briefing.