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The negotiations between Athens and its creditors are seeing a great deal of turbulence. All roads lead to Brussels, where the Greek government must present tight measures to avoid a rift with its partners.

The creditors’ ultimatum, the withdrawal of the IMF and the open discussion of a possible bankruptcy prompted the government to get its act together and send counter-offers to the institutions in order to strike an agreement on June 18th.

IMF is back

According to the latest reports, the IMF staffers have accepted the invitation to return to Brussels. Poul Thomsen will come to Brussels Sunday or Monday to represent the Fund.

Commission sources, however, seem less excited about what might happen in Brussels tomorrow; they qualify it as ‘discussion’ rather than as ‘negotiations’. A senior EC official told iefimerida.gr that "discussions always help as long as they are in the right direction. However, an agreement must involve all three institutions, and only then be approved by the creditors, and the EC is not among the latter."

"Any progress must be based on the three institutions. Unless each one of them comes along, there can be no progress," said the same EC official, adding that "Alexis Tsipras is dispatching his representative (Yannis Dragasakis) to Brussels. Having discussions is all right, but these are not negotiations."

The Greek delegation galloping to Brussels, tighter austerity in its brief

In this atmosphere of impasse, the meeting at the government headquarters did yield some news: Tsipras dispatched (after a telephone conversation with the European Commission President) the Greek team to Belgium to relay Athens’ proposal.

Details are scarce for the time being, but sources said the proposal is financial at its core.

The Greek delegation will include Yannis Dragasakis, Nikos Papas, Efklidis Tsakalotos, Georgios Chouliarakis and a technical team.

As far as addressing the financial deficit is concerned, the measures are purported as administrative and financial. Sources have emphasized that Greece puts much store by its proposals on debt, on the bonuses on pensions as well as on the zero deficit clause. The government seems willing to accept a primary budget surplus at 1% instead of 0.75%, as was its penultimate proposal.

Something else Athens considers important are the actions that the European Stability Mechanism will take as it must bear the burden of the ECB’s bond exchange.

On the issue of debt, Athens will come up with two proposals:

• 9-month funding until March 2016
• financing by late 2018.

The Grand Haggle on VAT

VAT rates remain the central problem. Push has literally come to shove, as the institutions are demanding €5.8 billion of revenues to sign up to the agreement.

To find this money, the government is preparing to raise VAT rates and transfer some goods and services to the higher rate band. The basic scenario is to increase the two lower rates:

• The lowest rate now at 6.5% should become 7%, which will burden medicines, books, theatre tickets, etc.
• The middle rate will become 12% - 13%, which will come to bear on fresh food, utility bills, hotels and restaurants.
• The high ratio will remain 23%; it covers packed food and all remaining goods and services.

Is that sufficient? Probably not, if initial projections show that this scenario will leave a hole of at least €700 million compared to what creditors want.

Here comes the alternative scenario. What does it envisage?

Apart from ramping up the first two rates, catering establishments are switched over to the third rate, i.e. from 13% to 23% , as it was in 2011.

What does the government expect from all these changes:

• If the VAT reduced rates for the Aegean are cancelled, the Treasury will get about €288 million while the budget estimate of €347 million is deemed ‘inflated’.
• The transfer of catering establishments to the 23% band will bring another €150 million, that is, although it will create major problems in tourism, it won’t translate into stunning revenues. But even these estimates are deemed optimistic as declining consumption and rising tax evasion will further decimate expected revenues.
• The transfer of hotels to the 13% band adds another €350 million, but this is provided the demand remains the same. The increased VAT on processed foods will fetch an estimated €350 million.

Is that sufficient? Probably not, because lenders insist on VAT measures reaching €2.3 billion, so that at least 1.8 billion more of revenues be collected. It should be noted that a recent evaluation report pointed out that the budget was losing €10 billion to the complexity of the VAT system and tax dodging.

How can the targets be made achievable? The creditors insist on squeezing electricity bills into the 23% band based on the argument that in many EU countries energy is subject to the highest VAT rate.

A shock awaits farmers as well

Meanwhile, reports from Brussels suggest that agriculture will be one of the sectors that will pay the heaviest price.