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Greek deal hopes could face reality of political hurdles in Athens

Wednesday, June 24, 2015 - 07:10
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Hopes were high on Tuesday that Greece and its creditors can seal a debt deal with 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.

[ATHENS] Hopes were high on Tuesday that Greece and its creditors can seal a debt deal with 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 on 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 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 parliamentary majority before June 30.

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

Mr Tsipras will also meet the leaders of Greece's creditors - the EU's Jean-Claude Juncker, the ECB's Mario Draghi and the IMF's Christine Lagarde - in Brussels on Wednesday afternoon.

Greece is up against a deadline of June 30 to repay the IMF around 1.5 billion euros (S$2.25 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.

'KISS OF DEATH'

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, Dr 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.

French Prime Minister Manuel Valls said the new Greek proposals are "serious and responsible", but added that there is "still a lot of work and steps to overcome." 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." Mr Sakeliardis added that Athens was still under "strong pressure" to provide additional measures.

The return of 23 per cent VAT on the restaurant sector - up from the current 13 per cent - has already been described as "the kiss of death" by the head of an association of restaurant chains, Thanassis Papanikolaou.

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

Mr Tsipras said 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.

One lawmaker from Mr Tsipras' party - which holds 149 out of 300 seats in parliament - has already publicly declared that he will vote against the proposed deal.

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." Nevertheless, thousands of protesters answered a call by unions close to Greece's communist party, turning out in central Athens Tuesday night to challenge the reforms.

"The new government proposals ... will lead to a deal that slashes revenues and the rights of the people," said Dimitris Koutsoumpas, who heads the Greek communist party.

Financial analysts too were not 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.

AFP