Greek MPs back new austerity plan as nation faces day of judgment

Greek MPs back new austerity plan as nation faces day of judgment

Despite a big parliamentary vote in favour of a deal with its creditors, Greece could be cut loose if it fails to win over EU leaders at a weekend of summits

Ian Traynor in Brussels and Graeme Wearden

Friday 10 July 2015 19.21 BST http://www.theguardian.com/world/2015/jul/10/greeks-facing-day-of-judgment-in-struggle-to-stay-in-eurozone

Greece faces its day of judgment on Saturday when eurozone countries must decide whether to open negotiations on a third multi-billion euro bailout for the insolvent country in five years – or whether it is cut loose and plunged into financial collapse.

A weekend of what is billed as “last-chance” summitry is to decide Greece’s fate after the government of Alexis Tsipras caved in to creditor demands for further austerity measures in return for the promise of limited debt relief. With the support of France, he tabled 13 pages of economic and tax reform pledges as the basis for talks on a new bailout worth more than €53bn over three years.

In the early hours of Saturday morning the Greek parliament voted to back Tsipras’s proposals. Despite a rebellion by some of his own MPs, Tsipras was given the backing of 250 out of 300 MPs to negotiate this weekend.

Tsipras said the vote gave him a “strong mandate to complete the negotiations to reach an economically viable and socially fair agreement”.

“The priority now is to have a positive outcome to the negotiations. Everything else in its own time,” he said.

In an ominous sign for the stability of the government, however, 10 deputies on the ruling benches either abstained or voted against the measures and another seven were absent, leaving Tsipras short of the 151 seats needed for a majority of his own.

Prominent leftwingers in the governing Syriza party signalled before the vote that they could not support the mix of tax hikes and spending cuts proposed by Tsipras, following the rejection of similar austerity measures by voters in Sunday’s referendum.

Energy minister Panagiotis Lafazanis, deputy labour minister Dimitris Stratoulis as well as the speaker of parliament, Zoe Constantopoulou, all abstained.

“The government is being totally blackmailed to acquiesce to something which does not reflect what it represents,” Constantopoulou said.

The Greek proposals were pored over on Friday after arriving in Brussels and other European Union capitals late on Thursday evening. The French president, François Hollande, described the new Greek plan as “serious and credible” and proved the Tsipras government was determined that Greece should stay in the eurozone.

There was no comment from the German chancellor, Angela Merkel, but there were conflicting signals from parties within her coalition, with some MPs saying it was an important step forward and others saying Greece was not to be trusted and should exit the euro.

Tsipras told members of his own party that he had no mandate to take Greece out of the euro and said: “We are all in this together”.

Senior eurozone officials will grapple with the details on Saturday morning before passing their recommendations to an extraordinary session in Brussels of the Eurogroup, the committee of 19 eurozone finance ministers.

The committee’s head, Jeroen Dijsselbloem of the Netherlands, said he expected a “major decision”.

After five weeks of breathtaking brinkmanship involving a referendum, marathon negotiations, countless reform and rescue blueprints, and five months of stalemate since the radical leftist Syriza party took office, the finance ministers have to decide whether there is a basis for launching an attempt to strike a new deal.

EU leaders have scheduled two extraordinary summits in Brussels on Sunday, the first involving the 19 eurozone heads of government, followed by those of all 28 member states including David Cameron and leaders of other non-euro countries.

These meetings would be cancelled, senior officials in Brussels said, if the finance ministers decided on a green light for new bailout negotiations with Greece.

“I’d be astonished if the heads overturned a decision of the finance ministers,” said a senior official involved in the negotiations.

That suggests that if the Sunday summits go ahead, they will be to plan how to cope with a Greek banking collapse and social chaos if the Grexit happens.

“I’m not optimistic,” said a eurozone official. “There are too many problems, not enough time, too many people who do not believe the Greeks will deliver their side of the bargain.”

An EU diplomat said eurozone creditors were very fed up with “five months of manipulation” by the Greek side and worried whether or not Tsipras would really push through the reforms demanded by creditors. “It doesn’t matter what they say, they will never do it.”

Tsipras has pirouetted this week in a way that has left the Europeans gasping in incredulity. He broke off negotiations a fortnight ago and announced a snap referendum on the austerity terms demanded in return for extending the second bailout which expired on June 30.

He campaigned for a no vote and won handsomely, backed by more than 61%, before performing a striking U-turn on Thursday night, re-tabling the same austerity terms he had campaigned to defeat and which the voters rejected. The terms included VAT and pension reforms Tsipras had previously insisted were red lines which would never be crossed.

“On Sunday, the Greek people voted against these measures,” said Michael Fuchs, the deputy floor-leader in Berlin Merkel’s governing Christian Democrats. “I have a little bit of a problem trusting it because what is the difference between Sunday and today?

Deciding against a third bailout would leave Greece facing an unprecedented economic crisis. With its banks closed and capital controls in place, the financial institutions are rapidly running out of money. Without a bailout programme, the European Central Bank could cut off the only lifeline keeping Greece afloat: its emergency liquidity assistance to Greek banks.

Grexit summits on Sunday would then focus on helping Greek operations to establish a secondary parallel currency, the half-way step to a return to the drachma.

Despite Tsipras’s claims of a strong mandate for this weekend’s talks, his acceptance of the austerity measures demanded by the creditors will not be enough to secure a deal because the goalposts have moved in the two weeks since he rejected many of the same terms.

The negotiation has changed. What was being negotiated last month was prolonging an existing bailout arrangement by several months. Merkel has made plain that Greece needs to table much more ambitious and draconian measures to qualify for a new two- to three-year bailout worth a lot more money.

A German finance ministry spokesman said it was too late to “repackage” last month’s proposals and called on Tsipras to demonstrate greater commitment to an agreement by pushing reformist legislation through the Greek parliament immediately.

This issue will figure strongly in Saturday’s negotiations, officials and diplomats said, pointing particularly to the resistance to a new deal from the newer and smaller members of the euro in eastern Europe who, in recent months, have come out of the closet as fiscal hawks and the loudest critics of Tsipras.

The Slovak finance minister, Peter Kazimir, a leading hardliner, voiced his scepticism of Athens’ promises. “How quickly can a caterpillar turn into a butterfly?” he tweeted.

Dalia Grybauskaite, the president of Lithuania, said: “It seems those proposals will really not be enough.”

Her Latvian counterpart, Laimdota Straujuma, said: “It will be very hard for me to persuade the parliament. If you were to ask Latvians today whether they are willing to lend money to Greece, you can probably guess what their answer would be … At the moment, I see no reason for Latvia to give money to Greece.”

Estonia, Latvia, Slovakia and Slovenia take a similar view.

The head of sovereigns at Fitch’s ratings agency, James McCormack, predicted the talks would fail and there would be “an eventual exit from the eurozone” for Greece.

Any agreement that might be struck would need to be put through the Bundestag early next week, but Greece fatigue is reaching critical mass in Berlin.

There was some optimism. Some bookmakersclosed their books for bets on whether Greece would survive in the euro after an avalanche of betting on Greece remaining in the currency following the unveiling of Athens’ plan. The financial markets responded favourably to the talk of a weekend agreement, strengthening the euro against the dollar.

And Paris, in a rare challenge to Merkel in five years of currency travails, has staked its all on keeping Greece in the euro, dispatching experts to help Athens to write its reform manifesto and loudly campaigning for an agreement to rescue Greece.