Surprise: Greece's Socialist Government Agrees to Cut Taxes to Spur Growth

Posted: May 31, 2011 5:22 PM

A sharp and revealing catch by our finance editor, John Ransom:

Greece appears to have agreed [to] a tax cut with its international lenders, aimed at forging a broad consensus for more austerity to avoid a debt default, but the opposition said on Tuesday this would still not win its support.

International lenders are demanding that leading Greek political parties sign up to the government's latest austerity and reform drive to ensure that Greece keeps tackling its huge budget deficit for years to come, whoever is in power.  In Berlin, a German coalition source said European Union, IMF and ECB inspectors had struck a deal with the Socialist government on a value-added tax cut.

"They have agreed on it," the source said, following Athens newspaper reports that the "troika" team, which is scrutinizing Greek finances, had backed a reduction in VAT rates.  Germany is a major contributor to EU bailouts although public opinion there is hostile to providing further rescue funding for the Greek economy.

Greece's conservative opposition leader Antonis Samaras has demanded tax cuts -- including a 15 percent flat rate for corporate tax -- as the price for a deal with the government, which the EU has insisted on as a condition for more funds.

John synthesizes the story nicely:

International lenders known as "the troika" have agreed to another bailout of Greece as long as Greece's socialist government agrees to...wait for it...cut taxes to stimulate economic growth.  It's amazing the lengths socialist will go when pressed. Cut taxes? What a novel idea. Wonder if any has thought of that before?

With Greece teetering on the brink of financial ruin, the socialist government has agreed to cut the VAT according to reports by Reuters. The VAT cut comes in an effort to restart the Greek economy, which has been in a free fall, burdened by entitlement debts it can not pay.

I await Congressional Democrats' denunciation of the Greeks' decision ("you must deal with the revenue problem!") with baited breath.