Greece caves in completely to EU austerity demands; parliament revolts
After months of arrogant posturing, Greek prime minister Alex Tsipras humbled himself and his government by submitting a plan to its creditors that include changes to the government's generous pension system and tax increases – two issues that Tsipras swore he would never agree to.
In essence, Tsipras and his far-left Syriza party have reneged on their campaign promises to throw out the reviled austerity program and begin a massive new spending program.
It looks like we may finally have a breakthrough in these intractable debt negotiations. The Greeks are now promising to hit their fiscal targets, crucially carrying out pensions reforms of 1pc of GDP and hitting a 1pc surplus target through various changes to VAT and early retirements.
To quote from the letter: "there are no fiscal slippages and the prescibed objectives have been exceeded". That looks like being enough to satisfy creditor powers for now. Any final agreement could now come as soon as Thursday.
The reaction in parliament, where far-left deputies dominate, was predictable.
Greek lawmakers reacted angrily on Tuesday to concessions Athens offered in debt talks and parliament's deputy speaker warned the proposals might by rejected, puncturing optimism that a deal to pull Greece back from the abyss might be sealed quickly.
Euro zone leaders welcomed new budget proposals from Athens on Monday as a basis for further negotiations to unlock billions of euros in frozen aid and avert a default that could trigger a Greek exit from the single currency area.
Stock markets also cheered, with European shares extending the previous session's sharp rally and climbing to a three-week high on hopes of a deal. But the euro fell on fears the plan would struggle to win approval in Greek parliament.
Prime Minister Alexis Tsipras, who was voted into office in January on a pledge to roll back years of austerity in a country battered by recession, must keep his leftist Syriza party as well as his creditors onside for a deal to stick.
Outspoken Syriza lawmakers voiced outrage at Tsipras's offer to raise a range of taxes as well as pension and healthcare contributions, which threaten to further increase hardship on Greeks reeling from previous rounds of austerity.
"I believe that this program as we see it ... is difficult to pass by us," deputy parliament speaker and Syriza lawmaker Alexis Mitropoulos told Greek Mega TV
"The prime minister first has to inform our people on why we failed in the negotiation and ended up with this result," he said. "I believe (the measures) are not in line with the principles of the left. This social carnage ... they cannot accept it."
Will the Greek parliament be as pragmatic as Tsipras in accepting more austerity? If anything, parliament has been more fanatical in its opposition to any deal that touches pensions or raises taxes. Members have been insistent on holding the prime minister's feet to the fire on austerity, which led to the spectacle in early June of Tsipras getting close to making a deal only to suffer a huge backlash in parliament that made him retreat.
The question now is, will any of this really help Greece avoid default? Many experts say that Greek banking system is already teetering, with more than $40 billion withdrawn by depositors since January. The European Central Bank keeps the Greek banking system liquid with massive infusions of cash – more than $85 billion to date. The ECB has continued injecting money into the system – four times this past week they've pumped more than a billion dollars into the banks. But a few more days of the run being experienced by banks may force the ECB to bow to the inevitable and force them to halt the emergency lifeline.
The deal could still blow up, either in Brussels, where experts are minutely examining the Greek proposals, or in Athens, where parliament may rebel. The upshot is that Greece is a long way from being out of the woods.