The Greek government was under intense domestic political pressure on Tuesday night over concessions offered to creditors as eurozone finance ministers prepared to discuss a deal to stave off financial collapse in Athens.
Talks between Greece and its lenders are continuing ahead of Wednesday night’s ministerial gathering in Brussels, with Athens needing an agreement to make a €1.6bn (£1.1bn) payment to the International Monetary Fund due next Tuesday.
However, the Greek prime minister, Alexis Tsipras, faced criticism from within his coalition government over compromise proposals that will raise €8bn by increasing pensions contributions, phasing out early retirement, hiking corporation tax and raising some rates of VAT.
“Many MPs, be them on the left or not, are very sceptical about accepting such a programme,” said Costas Lapavitsas, an economics professor at the University of London who is now an MP for Tsipras’s ruling leftwing Syriza party. “How will they explain it to their voters? How will they return to their electoral constituencies and explain this agreement to them?”
The government’s junior coalition partner, the small rightwing Independent Greeks party (Anel) deepended complications for Tsipras by warning it would only support an agreement that committed to some form of debt write-off. Greece’s creditors are not expected to make such a commitment this week. Panos Kammenos, Anel’s leader, said his party would oppose a proposed VAT increase for Greek islands “even if the government falls”.
It remained unclear on Tuesday night whether the Greek leader would be able to contain the dissent or even pass an agreement through parliament, regardless of whether a deal is reached in Brussels.
Any deal that is eventually reached will have to be endorsed by a working majority in the 300-seat parliament in Athens, with a close ally of Tsipras indicating that fresh elections or a referendum might be needed if an agreement is not voted through.
“For the government to forge ahead in difficult conditions after the agreement and to restart the economy and kickstart the country’s productive reconstruction, it has to have a unanimous parliamentary group which will put the programme into effect,” said Alekos Flambouraris, a senior government minister.
Despite the backlash in Athens, there was optimism elsewhere in Europe that a deal could be reached on Wednesday. Germany’s vice-chancellor Sigmar Gabriel said a deal with Greece was possible. But he dampened expectations of debt relief, saying that a haircut for Greece would not lead anywhere if new debts are soon accumulated.
Earlier on Tuesday, the European Central Bank agreed to inject nearly €1bn into the Greek banking system, the third consecutive working day that Greece has received emergency help from the ECB’s emergency liquidity assistance programme to stave off bankruptcy as depositors take billions of euros out of accounts.
Irish finance minister Michael Noonan, whose country has successfully completed its bailout programme and returned to growth, warned that emergency funding for Greece’s banks could be cut off unless a deal is reached soon.
“The new round of negotiations have a very short timeframe to be concluded satisfactorily or there is a risk that ELA will be cut off because they are bound by legal arrangements in the European Central Bank,” he told the parliament in Dublin.
Greece and its creditors have just days to reach an agreement that will unlock bailout funds ahead of the IMF payment due on Tuesday 30 June. Failure to pay could trigger a chaotic exit from the eurozone that both Greece and its creditors insist they are anxious to avoid.
The European commission is also dangling the prospect of €35bn in financial aid for Greece if a deal is made. “I want ordinary Greeks to know we are offering €35bn to help the economy,” said Jean-Claude Juncker, head of the EU’s executive arm. A commission spokeswoman said the money would come from the 2014-20 EU budget, suggesting that the money was a restatement of pre-existing funds. The commission has promised more details in the coming days.
Technical experts will meet again on Wednesday ahead of the meeting of eurozone finance ministers, which is due to start at 7pm. This Eurogroup meeting will be followed by a long-scheduled summit of all 28 European Union leaders on Thursday and Friday, where a final deal could be approved.
The German chancellor, Angela Merkel, said she hoped EU leaders meeting on Thursday would only have to “take note” of the Eurogroup agreement with Greece. She has been reluctant to add the Greek crisis to the packed agenda of the summit, which includes the humanitarian migrant crisis at Europe’s borders and the UK’s demands for EU reform.
Renewed optimism among investors that Greece would avoid a chaotic default boosted stock markets on Tuesday. Greece’s main index rose ended the day up more than 6%, while the French and German exchanges gained over 1.2% and 0.7% respectively. In London the FTSE 100 was flat, while Japan’s Nikkei index hit a 15-year high.
The mood was also lifted by unexpectedly positive data showing that eurozone factories and service industries were growing faster than many economists had thought. The Markit eurozone index rose to 54.1 in May, up from 53.6 the previous month, on a scale when anything over 50 signals expansion. Chris Williamson, chief economist at Markit, said the eurozone economies were weathering the stalemate over Greece relatively well.
Some analysts, however, worried that investors were getting carried away. “Yesterday’s euphoric market reaction to the proposed new Greece debt deal seems somewhat of an overreaction to an event that on the face it will do little to resolve Greece’s long-term problems, and while as yet nothing has actually been agreed,” said Michael Hewson, chief market analyst at CMC Markets.
Greece’s state minister Nikos Pappas hit back at criticism of the putative deal on Tuesday night. Pappas said he was confident parliament would back a deal.
“It is clear than any agreement will require the majority which was formed by the elections. I assure you that the deal will be such that it will win the backing of the government majority and of the Greek people,” Pappas told Greece’s Mega TV.
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