Greece’s debt relief closer than ever?

Eurozone seems ready to help Greece with debt repayments after new tax reforms pass

Photo by: Reuters
Photo by: Reuters

Greek Prime Minister Alexis Tsipras addresses lawmakers during a parliamentary session before a vote on tax and pension reforms in Athens, Greece, May 8, 2016.

Updated May 9, 2016

Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, seems positive over a deal with Greece on debt relief after he said he hopes for a deal to be finalised this month.

After speaking in Brussels on Monday Dijsselbloem said that there will be "a first discussion" and there is a possibility that the eurozone ministers would close the deal on May 24.

"Today we are having a first discussion on the topic and then we will cut the knot on May 24," Mr Dijsselbloem told reporters.

"Today, we'll only have a first discussion on what, when, if and how debt relief measures could take place. I don't expect any decisions on that, it's only a first discussion," he added.

Even though Germany thinks Greece is in no need of debt relief, the Eurogroup will start preliminary talks to work on a better repayment model for the Greeks.

"A ... deal needs to address three issues: reforms - we are there - the contingency mechanism - we are almost there - and the debt issue - we are starting the discussion," European Commissioner for Economic and Financial Affairs Pierre Moscovici said on entering the meeting.

The International Monetary Fund  (IMF) also believes Athens needs debt relief for the country develop its economy in the future.

As officials said, German Finance Minister Wolfgang Schaeuble and Greek Finance Minister Euclid Tsakalotos met in Brussels on Monday just ahead of the eurozone meeting to find a possible compromise on the issue.

Greek lawmakers late on Sunday adopted a controversial package of pension reforms and tax hikes despite mass public opposition, bowing to creditor demands in the hope of unlocking the next tranche of badly-needed bailout funds.

The unpopular measures, which saw thousands protesting outside parliament earlier, were passed thanks to the Syriza-led coalition government's slim majority in parliament, according to Agence France Presse. As expected, the main New Democracy opposition party voted against the austerity package.

They are the latest reforms demanded by the European Union and International Monetary Fund in exchange for fresh funds from Greece's 86-billion-euro ($95-billion) bailout agreed in July - the third for the debt-laden country since 2010.

Brief clashes erupted outside the parliament in Athens ahead of the vote, with youths throwing Molotov cocktails and flares at riot police who responded with volleys of tear gas, AFP reporters reported.

Greek riot police dodge petrol bombs thrown by protesters during minor clashes following a protest outside parliament in central Athens where lawmakers were discussing controversial tax and pension reforms May 8, 2016. [AFP]

Prime Minister Alexis Tsipras, who has said reform is needed to prevent the pension system collapsing in a few years, defended the changes in parliament late on Sunday.

"The system requires root and branch reform that previous governments have not dared to undertake," he told lawmakers, adding that the reforms would not affect those on low incomes, something that was the result of "long and hard negotiations with creditors."

Greek Prime Minister Alexis Tsipras delivers a speech during a parliamentary session in Athens on May 8, 2016. [AFP]

His left-wing Syriza party holds a slim majority with 153 seats in the 300-seat parliament.

Earlier, a sea of demonstrators marched through the streets waving banners with many of those taking part supporters of the communist-leaning PAME trade union.

"Social security, public and compulsory for all. The plutocracy must pay," said one union banner.

Numbers were, however, significantly down on February protests when 40,000 people marched in Athens alone.

"People are tired and disappointed by the leftist government in power... the rallies have not had the scale we had expected," said Maria, a private sector employee in her fifties who claims to be owed 30,000 euros ($34,000) in back pay from her employer.

Members of the communist-affiliated PAME union take part in a rally commemorating May Day, which was postponed due to the Greek Orthodox Easter, and against tax and pension reforms in Athens, Greece, May 8, 2016. [Reuters]

Finance Minister Euclid Tsakalotos has called on the eurozone to back the reforms, warning of a "failed state" if the Brussels talks run aground.

"The elements for closing the first review and providing debt relief are, I firmly believe, all there," according to a letter to the euro area's finance chiefs seen by AFP.

"Nobody should believe that another Greek crisis, leading perhaps to another failed state in the region, could be beneficial to anyone."

Greece's budget deficit has ballooned as it struggles to keep up with mammoth debt payments, which the IMF believes are unsustainable.

In its official agenda for Monday's meeting in Brussels, the Eurogroup said it would review the "progress achieved" by Greece as well as discussing "possible debt relief measures."

Differences between creditors

Greece was also in the grip on Sunday of the third day of a general strike that has paralysed public transport across the country.

During the stoppages, the public sector has operated at a snail's pace, while most TV and radio stations have refused to air news bulletins.

Despite the pressure from the strikes, Employment Minister Georgios Katrougalos stood by the pensions overhaul, pointing to a funding shortfall of two billion euros.

"This reform should have been done decades ago," he said.

Ahead of the Brussels meeting, differences between the creditors themselves have emerged over extra reforms demanded by the IMF that could amount to another 3.6 billion euros of cuts by Greece.

IMF chief Christine Lagarde has warned that there were "significant gaps" in Greece's reform offers, while European Commission head Jean-Claude Juncker said Athens had "basically achieved" the objective of the measures required by creditors.

But both the EU and the IMF have agreed that debt relief could be considered.