Greece submits reforms to creditors to stay in euro

Prime Minister Alexis Tsipras's administration handed the package to eurozone partners just two hours before a midnight deadline.
Prime Minister Alexis Tsipras's administration handed the package to eurozone partners just two hours before a midnight deadline.PHOTO: REUTERS

ATHENS (AFP) - Lawmakers in Greece will vote as early as Friday whether to back a last-ditch reform plan the government submitted to creditors overnight in a bid to stave off financial collapse and exit from the eurozone.

Prime Minister Alexis Tsipras's administration handed the package to eurozone partners just two hours before a midnight deadline.

The offer, set out in a 13-page document, concedes to Greece's paymasters on several key points that Tsipras's ruling coalition - and the Greek voters, in a referendum last weekend - had previously fiercely opposed.

"We face critical decisions," Tsipras told Syriza lawmakers, according to the state news agency ANA.

In a bid to head off a possible challenge to the measures within his party, he urged them "to stand united and firm in front of these important decisions."

It remains to be seen how sceptical eurozone partners, Germany particularly, respond to the submission. Several had been openly suggesting Greece could be cut loose from the eurozone.

A make-or-break summit bringing together leaders of all 28 EU nations, not just the 19 that use the euro, will be held on Sunday.

It will decide whether to accept Greece's reform plan in exchange for another huge bailout - its third in five years - amounting to tens of billions of euros, or force a "Grexit" from the eurozone.

European stock markets rallied on news of the Greek proposal. London's FTSE index rose 1.07 per cent at the start of trading, Frankfurt's DAX 30 added 1.6 percent and the CAC 40 in Paris leapt 2.67 per cent. The euro surged to $1.111.

The reforms agree to creditors' demands to raise the age of retirement, increase sales taxes, and speed up privatisation. But they seek to limit changes on other thorny issues, including tax breaks for Greece's islands and cuts to military spending.

The proposal aims to procure a financing deal "for three years, debt adjustment and a front-loaded investment package of 35 billion euros (S$52.5 billion)," a Greek government source said.

Tsipras is taking a political gamble by making any concessions to creditors' demands.

Hardliners in his Syriza party and coalition partner the Independent Greeks have obstinately rejected further austerity.

And Greek voters last Sunday roundly voted 'No' to accepting tough conditions attached to the last Greek bailout that expired June 30.

But the alternative for Greece is grim.

Germany has led a majority bloc of eurozone nations saying that, after two bailouts over the past five years totalling 240 billion euros, and 107 billion euros in debt forgiveness in 2012, Greece is looking like an irredeemable moneypit.

Kicking Greece out of the eurozone, and possibly even the EU itself, had become a 50-50 scenario this week, according to analysts.

Greeks overwhelmingly want to keep the euro. More than three quarters are against losing the single currency and returning to the drachma, surveys consistently show.

The reality of Grexit has been staring them in the face for the past two weeks, in the form of ATM screens that are limiting daily withdrawals to 60 euros ($67) under capital controls imposed to slow a slide to bank insolvency.

"The government has to find a deal with its European partners no matter what. We didn't vote 'No' to leave the eurozone," said a pensioner in Athens, Nikos Eftekidis.

But another pensioner, Giorgos, said the "government's proposed measures are very tough, I wasn't expecting that. That's not what the Greeks voted for."

Panagiotis Chatzichristos, a decorator who had also voted 'No', said that, "if Tsipras at least gets a concession from the European partners on debt relief, that would be good".

U-turn on pensions, taxes

Under its new proposal, Greece is agreeing to discourage early retirement and seek higher health contributions from pensioners.

Tax on shipping, corporate tax and a luxury tax would be increased and a crackdown would be energetically pursued on tax evasion, according to the submitted document.

In it, Greece also pledged to raise sales tax revenue by the equivalent of 1.0 per cent of gross domestic product (GDP), sell the state's remaining shares in telecoms giant OTE and commit to privatising the ports of Piraeus and Thessaloniki no later than October.

But Athens also warned the primary surplus targets it had already agreed with its debtors - one percent of GDP this year, followed by 2.0 percent in 2016 and 3.0 percent in 2017 - would have to be revised because of worsening economic conditions.

Instead of abolishing a 30 percent tax break on all its islands, as requested by its creditors, the government said for now it will only scrap the measure on the wealthiest islands and those most popular with tourists.

And, whereas the creditors had demanded a 400-million-euro reduction in military spending, Athens is offering to cut 100 million this year and 200 million in 2016.

'Basis for discussion' -

Tsipras hopes the measures will pass muster with Germany and other hostile eurozone countries, and open the door to the creditors discussing another round of relief from Greece's suffocating 320-billion-euro ($350-billion) mountain of debt.

French President Francois Hollande sounded upbeat on Friday, saying "the Greeks have shown a determination to want to stay in the euro zone because the programme they are presenting is serious and credible," adding however that "nothing is decided yet."

Germany, Europe's largest economy, has ruled out debt forgiveness.

"I have said that a classic 'haircut' is out of the question for me and that hasn't changed between the day before yesterday and today," German Chancellor Angela Merkel told reporters on Thursday.

But German Finance Minister Wolfgang Schaeuble acknowledged that IMF chief Christine Lagarde was correct in saying Greece needed debt restructuring - something that could involve pushing back repayments or lowering interest on loans.