Greek deal hopes could face reality of political hurdles in Athens

JUN 23, 201511:53 PM

[ATHENS] Hopes were high on Tuesday that Greece and its creditors can seal a debt deal in the exactly one week left to avert default, but those could fade as the Greek premier must convince his anti-austerity party to approve concessions needed to unblock bailout funds.

"We are very near (an agreement), the next 48 hours will be decisive," said Greek government spokesman Gabriel Sakellaridis, after Monday's emergency eurozone summit ended with an optimistic assessment of Athens' latest proposals to its European Union and International Monetary Fund creditors.

"I am convinced that we will reach an agreement," EU commissioner for economic affairs Pierre Moscovici told French radio Tuesday after Greece submitted an 11th-hour reform plan to free up crucial funds from its international bailout.

Optimism drove European stocks up further after a huge rally the previous day that saw Wall Street hit record highs. Athens closed 6.1 per cent higher on Tuesday after rocketing up 9 per cent on Monday. Other eurozone markets were also showing strong gains in late afternoon trading.

Mr Moscovici warned however that "work remained to be done" on the issues of value-added tax and pension reform - key sticking points for the radical left government in Athens.

And the Greek government also issued a word of caution Tuesday, pointing out that any accord would have to be approved by a majority in parliament before June 30.

"If the agreement is not approved by the deputies of the governmental majority, the government cannot remain in place," Mr Sakellaridis said.

Getting approval could prove a tough battle for Greek Prime Minister Alexis Tsipras, who was elected on an anti-austerity platform, and may risk members of his hard-left Syriza party viewing him as backsliding on campaign promises.

Time is running short as the leaders of the 19 eurozone countries have ordered their finance ministers to hold fresh talks on Wednesday to thrash out the details of an agreement, ahead of a full meeting of all 28 EU member states on Thursday.

Greece is up against a deadline of June 30 to repay the IMF around 1.5 billion euros (US$1.7 billion).

Meanwhile growing fears of a bank run in Greece amid a huge outflow in deposits again prompted the European Central Bank on Tuesday to inject more emergency funding to cover withdrawals.

German Chancellor Angela Merkel said Monday that while Greece's latest plans were a "good starting point for further talks," it was also clear that "absolutely intensive work is necessary now." At the same time, Merkel ruled out any question of debt reduction, as Greece has demanded, and also said the leaders at the emergency eurozone summit had not discussed any possible extension of the Athens bailout.

The Greek proposals were a last-ditch bid to unlock the final 7.2 billion euro tranche of its current bailout programme. If it fails to get the funds it will almost certainly be unable to make the payment to the IMF at the end of the month.

But the Greek government spokesman insisted that there was "no question of putting in place other measures... there is no question of stepping back on our proposal," said Mr Sakeliardis, adding that Athens was still under "strong pressures" to provide additional measures.

The return of 23 per cent VAT on the restaurant sector - the rate in place from 2011 to 2013 - has already been described as "the kiss of death" by the head of an association of restaurant chains, Thanassis Papanikolaou.

Greece's latest proposals to its creditors for this year and next aim to raise eight billion euros, mostly through new taxes.

Mr Tsipras said on Monday the "ball is now in the court of the European authorities," who have until now always insisted that it is up to Greece to make concessions.

The Greek premier has baulked at making more of the spending cuts that have created five years of hardship for many Greeks, insisting that pensions and VAT hikes represented red lines.

One lawmaker from Tsipras' party - which holds 149 out of 300 seats in parliament - has already publicly declared that he will vote against the proposed deal, and the union of the Communist party has called for a demonstration later Tuesday, denouncing "an agreement against the people."

Mr Tsipras has started to marshall his arguments to defend a deal with the EU-IMF creditors, saying late Monday that Athens' proposals preserve "social justice." But analysts weren't enthusiastic about plans relying on tax hikes that are likely to hit growth prospects.

"This would repeat the key mistake of the early 2010-2013 bailout programmes for Greece, namely to hit aggregate demand too hard" and contributed to deep recession, said Berenberg Bank economist Holger Schmieding in a note to clients.

AFP