Germany Delays Greek Bailout Payment on $33 Million VAT Hole

(Bloomberg) -- Germany held up a final 15 billion-euro ($17.5 billion) aid payment to Greece after the government in Athens postponed a sales-tax increase, adding to signs that Prime Minister Alexis Tsipras has his work cut out to regain the trust of his euro-area creditors as he leads the country out of its bailout program next month.

Euro-area finance ministers on Thursday gave the green light for the loans to be disbursed to Greece once lawmakers sign off in Berlin. The last-minute snag came when Tsipras decided to push back a value-added tax hike on a handful of islands that have been hit hard by the influx of migrants.

The lost revenue at issue is just 28 million euros, but Germany insisted that Greece find savings elsewhere -- including its defense budget -- to fill the gap, according to an internal memo seen by Bloomberg. Tsipras, who faces a general election next year and is behind in the polls, announced the delayed VAT increase after agreeing to a request from Chancellor Angela Merkel to take back refugees from Germany.

“Yesterday’s whole episode clearly cannot derail Greece’s so-called ‘clean’ exit from the bailout,” analysts at Pantelakis Securities SA in Athens said in a note on Friday. “However it does serve to show just how tight the leash international lenders aim to hold on Greece even after Aug. 20.”

Surveillance Regime

Pierre Moscovici, the EU commissioner for economic affairs and taxation, told reporters in Brussels that the delay doesn’t threaten the payment, which will be made “in due time.” Greece will remain under a so-called enhanced surveillance regime, which includes quarterly reviews of its finances.

“We all know that the amount is not very big,” said Klaus Regling, who heads the European Stability Mechanism, the euro-area bailout fund. The Greek government has pledged to raise the VAT rate at the end of the year, and to compensate for the lost revenue. “That was an important step that hopefully will enable also Germany” to approve the payment, he said.

Delivering on promises to regain economic sovereignty may prove a challenge, as a potential showdown with creditors could complicate Greece’s tenuous access to bond markets. When asked if Tsipras could renegotiate pension cuts scheduled to kick in at the end of the year, Regling said Greece must respect the commitments it made during its bailout program.

Even though Greece won’t escape close surveillance when its bailout expires, its banks won’t benefit from cheap financing lines extended by the European Central Bank. ECB Executive Board member Benoit Coeure reiterated on Thursday that a waiver allowing Greek banks to benefit from such funds will be lifted once the bailout expires.

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