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10/12/2016

Greece crunch debt talks restart after no late-night deal

Euro & Finance

Greece crunch debt talks restart after no late-night deal

Tsipras and Juncker

[European Council]

Greece will restart crunch talks with its creditors on Thursday (25 June) in a bid to save Athens from default, hours after Prime Minister Alexis Tsipras lashed out at lenders for rejecting his reform plans.

Talks were due to start at 6:00 AM after late-night talks on Wednesday evening ended without a breakthrough, as Greece’s leaders rejected reforms demanded debtors.

>> Read: Eurogroup on Greek crisis breaks up after 90 minutes

Negotiators will try to finalise a deal in time to have it approved at a meeting of eurozone finance ministers later in the day, and then rubber-stamped by national leaders meeting at European Union summit on Thursday and Friday.

Talks broke up yesterday evening after eurozone and IMF tore apart Greek proposals submitted on Monday, which had initially raised hopes of an agreement.

‘Blackmail’

In Athens, a senior official of Greece’s ruling Syriza party attacked the latest proposals from international lenders as “blackmail” on Thursday, highlighting the deep divisions between Athens and its creditors, as wrangling continued over a bailout deal.

“The lenders’ demand to bring annihilating measures back to the table shows that the blackmail against Greece is reaching a climax,” Nikos Filis, the ruling Syriza party’s parliamentary spokesman told Mega TV.

He said the Greek side was maintaining its insistence on debt relief as part of any accord, in comments that were echoed by Labour Minister Panos Skourletis.

“There cannot be a deal without a substantial reference and specific steps on the issue of debt,” Skourletis said in an interview with state broadcaster ERT.

Discussions have become increasingly acrimonious ahead of a June 30 payment deadline. On Wednesday, Greece withdrew some of its proposals, apparently for the first time since negotiations began.

Greek government sources said two were withdrawn from the list under pressure from Tsipras’s Syriza party, including an unpopular increase in pensions contributions. The Greek side is seeking to offset the changes financially with other measures, sources said.

A European source said there was “hope of an agreement between the (creditor) institutions and Greek authorities” from the talks between Tsipras and the EU-IMF.

The Eurogroup of finance ministers from the 19-country currency union also plan to restart talks on releasing further financial aid for Greece at 1100 GMT Thursday after talks the previous night ended only an hour in.

“We have not reached agreement yet, but we are determined to continue our work towards doing what is necessary,” Jeroen Dijsselbloem, head of the Eurogroup, told reporters.

‘Strange position’

Tsipras flew to Brussels early Wednesday for a crunch meeting with European Commission President Jean-Claude Juncker, IMF chief Christine Lagarde and European Central Bank boss Mario Draghi.

But after the talks once again stalled, he lashed out at Greece’s creditors over what he said were fresh demands they had made, in addition to a reform plan Athens submitted last week, to end the five-month standoff.

“This strange position maybe hides two things: either they do not want an agreement, or they are serving specific interests in Greece,” Tsipras said as he went into the talks.

His government, elected in January, has vowed to end years of austerity imposed under two bailouts worth 240 billion euros, and has resisted demands by creditors for spending cuts and pension reforms.

But the European-IMF lenders have refused to unlock the last 7.2 billion euros of Greece’s bailout before it expires on June 30, which Greece needs to pay a 1.5-billion-euro IMF loan repayment on the same day.

EU President Donald Tusk warned last week of the growing risk of a “chaotic, uncontrollable Grexident” – Greece crashing out of the euro and perhaps also the EU, which it joined in 1981.

ECB cash injection

The new plans submitted on Sunday by Greece aim to raise eight billion euros, mostly through new taxes on the wealthy and businesses, VAT increases and a cut in defence spending.

But in counter-proposals handed to Greece on Tuesday, creditors are calling for early retirement to be abolished and an increase in the retirement age from 62 to 67 by 2022, not 2025.

They are sticking to demands for a 23% value-added tax rate for restaurants, instead of the current 13%. Athens is fearful of the consequences to its valuable tourism sector.

Creditors also propose to increase corporation tax to 28% from the current 26%, instead of the Greek plan to raise it to 29% from 2016 onwards.

And they want defence expenditure to be slashed by 400 million euros instead of the proposed 200 million euros.

Greece’s banking system has been kept afloat by cash injections from the ECB as wary Greeks withdraw their deposits. On Wednesday, it increased emergency liquidity funds for the fifth time in eight days.

Athens has also warned any accord would need to be approved by parliament before 30 June, which risks splitting Tsipras’s Syriza party, where many on its left wing view him as reneging on campaign promises.

Any Greek agreement will also need to deal with what comes next, with EU officials suggesting an extension of the bailout until the end of the year, followed by a possible third aid package to keep Greece afloat.

The two huge bailouts since the Greek crisis erupted in 2010 have left it with debt totalling nearly 180 percent of its annual economic output.

Background

The anti-austerity party Syriza won an overwhelming victory in the Greek elections on January 25, but failed to obtain an absolute parliamentary majority.

The party leader Alexis Tsipras provoked mixed reactions among his EU counterparts, announcing that the "vicious cycle of austerity is over".

Reforms offered by Athens have failed to convince the Eurogroup and the country's creditors, and Greece now finds itself unable to pay its debts and in a more precarious situation than ever.

The proposals were a bid to unlock the final €7.2 billion tranche of its international bailout, which creditors have refused to release unless Greece agrees to more austerity measures. Greek Prime Minister Tsipras was elected promising to end five years of austerity.

Without the bailout cash Greece will be unable to meet a €1.5 billion International Monetary Fund (IMF) payment on Wednesday (30 June), and a default could send Athens crashing out of the single currency and possibly the EU.

>>Read: LIVE: Greece edging towards default?

Timeline

  • 25 June: Eurogroup meeting.
  • 25-26 June: EU council summit.