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Greek government prepares for another storm

Nefeli Agkyridou
Friday, 15 Nov 2013 | 2:44 AM ET
Amos Chapple | Lonely Planet Images | Getty Images

Greek finance minister Yannis Stournaras is on a push to gain confidence at home and abroad.

During a Eurogroup meeting in Brussels last night Stournaras tried to convince his European peers of the Greek government's sincere efforts to get a handle on its economy after nearly four years of emergency loans and six years of recession.

Klaus Regling, chief executive of the euro zone's emergency bailout fund the European Financial Stability Facility, speaking at a press conference in Brussels said the next tranche of aid for Greece would only be released at the end of a review of the country's attempts to reform its economy and spending by representatives of Greece's fellow euro countries, the European Central Bank and the International Monetary Fund -- the so-called Troika.

(Read more: Troika set to get tough over Greece budget shortfall)

During the same press briefing, Jeroen Dijsselbloem, head of the meeting of finance ministers from the 17 euro countries known as the Eurogroup, said this will only happen if there is some agreement on four areas: milestones that have been discussed, the fiscal gap, structural reforms and if the Troika sees some progress at the privatization program.

European Commissioner for Economic and Monetary Affairs and the euro Olli Rehn said there has been significant progress, but a lot more needs to be done. The Troika left Greece this week, but is due to return after the end of today's meeting of finance ministers from the 28 European Union countries to continue with this latest country review that has taken a significantly long time to complete.

At the same time, back home, Stournaras has had to face a number of "rebel" MPs threatening government stability.

After surviving a no-confidence vote brought forward by the Greek opposition leader Alexis Tsipras last week, Greece's coalition government is still teetering on the brink.

(Read more: Greece's problems are still Germany's problems)

The coalition, made up of the New Democracy and Pasok parties had one of its socialist lawmakers break ranks eroding its already slim majority. Several other members are deeply unhappy with their coalition partners and have been particularly critical of the government in interviews with Greek media this week. Conservative MP Dora Bakoyannis said in an interview with local radio RealFM that the Democratic Left, the smaller leftist party and former coalition partner, should return to the coalition, as it now needs a strengthened majority.

A new property tax bill put forward by the finance ministry and approved by the Troika in September is proving particularly hard to swallow for many. The draft bill proposes a tax on main residences, holiday homes, offices, farmland, and even on unoccupied land.

Greece has been relying on two bailouts worth 240 billion euros ($322 billion) from its fellow euro countries and the International Monetary Fund since 2010 when it could no longer afford to raise money on its own.

The loans came with strict spending and reform rules which, in turn, put the brakes on Greece's economy, keeping it mired in a six-year recession. Greece's debt pile, meanwhile, is the highest in the euro zone with the debt-to-GDP burden at 160.5 percent and unemployment is at record highs, particularly among the under the age of 25.

(Read more: Greece's tourism sector to boost economy: Minister)

"Unlike the council tax that is imposed on property dwellers in the U.K., where people know this money goes to road works or generally mending the borough, the proposed Greek tax doesn't make sense to the people. They think this is one more way for the government to make bad use of their money", Paschos Mandravelis, political commentator for Kathimerini newspaper told CNBC.

Property ownership through inheritance is extremely widespread in Greece. A family with a very low income might own land that it does not use in faraway places around the country.

"There is a widespread -- and actually promoted -- savings culture based on ownership, because of inflationary pressure and political instability all these years", Elena Panaritis, CEO of think tank Thought for Action and former Pasok MP said. "This is not a simple tax, it is a way of punishing the middle class, who have been good housekeepers and have been paying their taxes", she says.

"This is a steeply progressive tax. Expensive land is being taxed 1.500 times more than cheap land. Also, house prices, the assessed property values on which the tax is based were set by the government back in 2007, before the crisis started, and bear no resemblance to today's market values.", says Miranda Xafa, EF Consulting President and former IMF executive.

An initial tax on property ownership, the "haratsi" as people call it in Greece, was introduced by George Papandreou's government in September 2011 as an extraordinary measure that would only last for two years. It is now in its third year. The government expects the tax to bring in 2.8-2.9 billion euros, unlike the initial target of 3.6, as a lot of people will not have the money to pay this.

MPs are also rebelling against an end to the ban on foreclosures, which has been demanded by the Troika and has protected people who cannot service their mortgage. Stournaras said speaking at a press briefing to Greek journalists after the Eurogroup that the lift on all foreclosures starting from the 1st of january 2014 that the Troika is asking for should not go through, as this will cause even bigger problems to the already troubled housing market causing prices to go further down.

"The property bill is in trouble, as several MPs are asking for important changes in order to vote it", says Xafa.

Some MPs contesting the new law have offered a glimmer of hope, saying they will support a reworked property tax bill. Finance ministry sources told CNBC that they are considering MPs' suggestions ahead of an expected vote in parliament

Nefeli Agkyridou is an assistant producer at CNBC. Follow her on Twitter: @nefeliagk


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