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07/12/2016

EU welcomes 11th hour Greek proposal

Euro & Finance

EU welcomes 11th hour Greek proposal

Greek solidarity demonstration. Brussels, 21 June.

[Joel Schalit/Flickr]

The European Union welcomed new proposals from Greek Prime Minister Alexis Tsipras as a “good basis for progress” at talks today (22 June) where creditors want 11th-hour concessions to haul Athens back from the brink of bankruptcy.

EU chief executive Jean-Claude Juncker’s chief-of-staff spoke of a “forceps delivery” as officials worked late into the night to produce a deal ahead of a summit of eurozone leaders in Brussels that they hope can keep Greece in the currency bloc.

Giving no detail of a proposal he said was also received by the European Central Bank and International Monetary Fund, German EU official Martin Selmayr tweeted yesterday night: “Good basis for progress at tomorrow’s Euro Summit. In German: “eine Zangengeburt”.

After four months of wrangling and with anxious depositors pulling billions of euros out of Greek banks, Tsipras’s leftist government showed a new willingness at the weekend to make concessions that would unlock frozen aid to avert default.

It was not immediately clear how far the new proposal yielded to creditors’ demands for additional spending cuts and tax hikes, but the offer was a ray of hope that a last-minute deal may yet be wrangled before Athens runs out of cash.

Tsipras spent much of Sunday holed up in a marathon cabinet meeting and discussed the new offer with the leaders of Germany, France and the European Commission by phone.

“The prime minister presented the three leaders Greece’s proposal for a mutually beneficial agreement that will give a definitive solution and not a postponement of addressing the problem,” a statement from Tsipras’s office said.

He will meet European Commission President Juncker, ECB President Mario Draghi, IMF head Christine Lagarde and eurozone finance ministers chairman Jeroen Dijsselbloem at 11 a.m. (0900 GMT), an EU spokeswoman said. Eurozone finance ministers are due to meet 90 minutes later and a summit of eurozone prime ministers and presidents is scheduled at 7 p.m. (1700 GMT).

>>Read: EU readies for Grexit

US stock futures jumped in early Asian trade on Monday on hopes for a deal. The euro also ticked up against the dollar.

European ministers have played down the prospect of a final agreement on Monday but hope a political understanding can be reached in time for a full deal by the end of June.

Elected on a pledge to end austerity, Tsipras has defiantly resisted demands to cut pension spending and is pushing strongly for debt relief in return for any concessions.

But Greek officials have said Athens may be willing to consider raising value-added taxes or other levies to appease the lenders, who want concrete assurances that demanding budget targets will be met.

“There is no time to lose. Every day counts. Talks and negotiations must continue so that an agreement is reached,” French President François Hollande told a joint news conference with Italian Prime Minister Matteo Renzi.

Locked out of bond markets and with bailout aid frozen since summer last year, Athens is quickly running out of cash. The deputy finance minister on Sunday confirmed Athens had enough money to pay public sector wages and pensions this month.

But Athens also urgently needs access to funds to avoid defaulting on a €1.6 billion IMF loan that falls due at the end of the month. As the crisis gets pushed from one meeting to the next, each side has put the responsibility on the other’s shoulders for finding a deal.

Money has drained out of Greek banks after a breakdown in talks last weekend, and Greece might have to impose capital controls within days if there is no breakthrough.

>>Read: Tusk calls emergency summit after Greek talks collapse

Underlining the pressure to stem the flow of withdrawals, Bank of Greece Governor Yannis Stournaras met senior bankers on Friday and told them to brace for a “difficult day” on Tuesday if no deal is reached, two bankers at the meeting told Reuters.

Sources in Frankfurt and in Brussels said the European Central Bank’s board would discuss the liquidity of Greece’s banking sector at 0830 GMT on Monday. The sources said Greek pre-orders for deposit withdrawals for Monday had already reached €1 billion – after savers pulled over €4 billion out of their banks last week.

No to blackmail

For a deal to work, Tsipras will need a solution that is acceptable to his party or else may be pushed to call a snap election or a referendum to secure a mandate for an agreement.

Supporters of his Syriza party rallied in Athens on Sunday to send “a loud message of resistance” against demands for more cuts and tax hikes in a country battered by years of recession.

https://youtube.com/watch?v=R92FM9oan1I

Under austerity measures imposed by the IMF, EU and ECB in two bailouts, Greece’s economic output has fallen by a quarter, wages and pensions have been slashed and unemployment is running at 25%.

The Greek government has argued the austerity imposed on the southern European country had made the crisis worse. A senior Syriza lawmaker said on Sunday that previous ideas put forward by Juncker would have led to a “social holocaust”.

“Democracy cannot be blackmailed, dignity cannot be bargained,” the Syriza party said in a statement on Sunday, announcing its planned protest.

“Workers, the unemployed, young people, the Greek people and the rest of the peoples of Europe will send a loud message of resistance to the alleged one-way path of austerity, resistance to the blackmail and scaremongering.”

>>Read: Alexis Tsipras: German taxpayers are not paying for Greek pensions

But the mood has also hardened in Germany, which has contributed more money than any other country to bailing out Greece. German Chancellor Angela Merkel is under pressure from within her ranks not to give in to Greek demands, even if that means contemplating Greece leaving the eurozone.

Merkel’s Bavarian allies warned against giving in to Greece, with senior Christian Social Union lawmaker Hans Michelbach saying he saw no realistic chance of an agreement on Monday.

“If the EU lets the government in Athens get away with its intransigence, we can bury the euro,” Michelbach said in a statement on Sunday.

“Either Greece declares itself willing for a viable solution or the country must leave the euro. The eurozone could cope with the consequences of a Greek exit,” he said.

Background

On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2.0 billion in unused EU structural funds to Greece.

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the Troika of EU, ECB and IMF inspectors, which are now called "the institutions".

Timeline

  • 22 June from 19.00 hours: Extraordinary Euro summit in Brussels;
  • 25-26 June: EU summit in Brussels;
  • 30 June: Expiration of current bailout and deadline for Greece to make loan repayment.

Further Reading