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The Greek bail-out negotiations: The new sticking points

MARKETS breathed a sigh of relief on Monday when European leaders were broadly positive about the latest set of proposals from the Greek government. But today the talks are once again in trouble. The creditors, represented by the European Commission and the International Monetary Fund, have tabled counter-proposals and Alexis Tsipras, the Greek prime minister, has already rejected them. Tempers are rising again on both sides. So is a compromise now possible?One battle is over the balance of spending cuts and tax rises. The Greek government dominated by the radical-left Syriza party has been unsurprisingly reluctant to cut public expenditure. Its measures to achieve a primary budget surplus (in other words, before interest payments) of 1% of GDP (€1.8 billion or $2 billion) this year and 2% of GDP next year rely almost exclusively on tax rises. The corporate-income tax rate would rise from 26% to 29% in 2016. Pension contribution rates in the main private scheme would increase by 3.9 percentage points, reversing a previous cut and raising €350m this year and €800m in 2016. Moreover the Greek plan envisages a one-off 12% tax on corporate profits above €500,000, raising almost €1 billion this year and €400m in 2016.However, the creditors want a smaller increase in the corporate-income tax rate, from 26% to 28%. More importantly, they rule out the one-off corporate-profit …

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