Germany Blocks 15B Euro Greek Loan Installment Over Islands VAT Cut

Santorini island. (Photo by TNH staff)

Prime Minister and Radical Left SYRIZA leader Alexis Tsipras’ decision to give five Greeks islands overloaded with refugees and migrants an exemption from a Valued Added Tax (VAT) break without consulting the country’s creditors has led Germany to block release of a 15-billion euro ($17.44 billion) installment.

The money is the last from a staggered third bailout of 86 billion euros ($99.97 billion) he sought in the summer of 2015 after saying he wouldn’t because it came with more of the crushing measures he vowed to reject but agreed to implement.

That included an avalanche of tax hikes and new taxes, including raising the VAT on remote islands as well as the refugee-laden islands of Lesbos, Samos, Chios, Kos and Leros where some 15,000 are being held, with most seeking asylum after the European Union shut its borders to them.

Three rescue packages of 326 billion euros ($378.96 billion) end on Aug. 20, leaving Greece to the mercy of the markets and years of monitoring from the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM).

The Troika put up the third bailout while the Washington, D.C.-based International Monetary Fund (IMF) took part in two first loans of 240 billion euros ($278.99 billion) but was replaced in the latest by the ESM.

The lenders disputed Tsipras’ claim there would be a “clean exit” from the bailouts and said they’ll step up scrutiny to make sure he doesn’t renege on reforms, as he did in giving the refugee islands a break without clearing it with them.

Greek banks are also losing access to cheap liquidity through the ECB’s waiver on Greek government bonds, while the country is losing the chance to participate in the ECB bond-buying program.

For the 15 billion euros to be unblocked before the bailouts end, Finance Minister Euclid Tsakalotos pledged the islands discount would expire at the end of the year although Tsipras earlier said it would stand as long as there’s a refugee and migrant crisis.

Tsakalotos told a meeting of the Eurogroup, an informal body where the ministers of the euro area member states discuss matters relating to their shared responsibilities related to the euro that Greece will make up the loss of 28 million euros ($32.55 million) in the VAT exemption some other way although he didn’t say how.

With elections required to be held by October, 2019 and plummeting in polls after reneging on anti-austerity pledges, Tsipras is trying to wiggle out of imposing more pension cuts next year he agreed to after saying it was a Red Line he wouldn’t step over but jumped over at orders of the lenders.

Eurogroup chief Mario Centeno and ESM Director Klaus Regling stressed there should be no change to what has already been agreed. “The next stage, the end of the program, is very important for the building of confidence in Greece, which must remain loyal to the pledges made in the course of the program,” Centeno said.