Greek debt crisis: Eurogroup meets over reform plan

Euro zone ministers are meeting in Brussels today to discuss a further bailout for Greece after prime minister Alexis Tsipras won backing from parliament for painful reforms .

German finance minister Wolfgang Schäuble struck a downbeat note in Brussels, saying the Eurogroup was facing into “extremely difficult negotiations”.

Meanwhile, Dutch finance minister Jeroen Dijsselbloem, the Eurogroup president, said a deal was still a long way off. He warned there is still a “major issue of trust” between the Greek government and its international creditors.

The Greek parliament lastnight backed government proposals for economic reforms in the hope of staving off bankruptcy and the possibility of exiting the euro.

In Athens overnight, Mr Tsipras had to rely on opposition votes from the right after some of his leftist allies opposed spending cuts, tax rises and other measures he proposed in order to unlock €54 billion in three-year credit and save Greece from a bankruptcy that would force it out of the euro zone.

Germany, the biggest creditor in two previous bailouts totalling €240 billion is deeply sceptical after five months of abortive negotiations. Euro zone sources said it was far from certain that the 19-strong Eurogroup of finance ministers would agree to open negotiations at a crisis meeting.

Based on Berlin’s assessment of the Greek proposals, Dr Schäuble said Greek public finances were facing financing gaps “that go beyond anything we had in the past”.

Though he said Athens was sitting on piles of unpaid bills far beyond anything anyone believed would be paid, he echoed Chancellor Angela Merkel’s remarks on Tuesday in Brussels that debt haircuts for Greece were “not going to happen”.

The German finance minister said that, based on his reading of the European treaties, “debt relief is not possible in the currency union”.

While many finance ministers and officials from Greece’s creditors took an upbeat note on arriving in Brussels on Saturday, Dr Schäuble castigated the Syriza-lead government for, until recent days, having “destroyed” hope of recovery in Greece on an “unimagineable” scale.

Dr Schäuble and French finance minister Michel Sapin, arrived more than two hours early, as did new Greek finance minister Euclid Tsakalotos.

IMF head Christine Lagarde said on arrival: “I think we are here to make a lot more progress.”

German Chancellor Angela Merkel has made clear she does not want to see a "Grexit" that could disrupt the ailing European economy and undermine a supposedly irreversible union. However, she faces stiff opposition among her own conservative allies.

A positive assessment of the Greek proposals delivered by the European Commission, European Central Bank and International Monetary Fund late on Friday, along with bullish comments from Athens' key euro zone ally France, had raised expectations that the Eurogroup would give a green light to new loan negotiations.

Euro zone leaders, including Dr Merkel, French president Francois Hollande and Taoiseach Enda Kenny, are due to meet on Sunday, either to endorse the ministers' decision or, along with other EU leaders, to take steps to contain the fallout from a looming Greek bankruptcy.

Among the hawkish, small east European states whose voters are loath to pour more money into a country some believe the euro zone would be better off without, Lithuania’s finance minister said the Eurogroup would judge Mr Tsipras’s credibility.

“We have to take the best decision for the euro zone,” said Rimantas Sadzius. “We have to evaluate, how constructive and realistic it is ... We have no right to blindly borrow taxpayers’ money - we have to be sure they will be paid back”.

With Greece’s banks shut and completely dependent on a credit lifeline from the European Central Bank, the measures were seen as a last chance to avert financial collapse.

The European Commission, ECB and IMF told euro zone governments after a review of Tsipras’s proposals that they was sufficient basis to start negotiating conditional loans from the currency union’s ESM bailout fund.

But in an ominous sign for the stability of the Greek government, 10 members on the ruling benches abstained or voted against the measures and another seven were absent, leaving Mr Tsipras short of the 151 seats needed for a majority of his own.

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

Energy minister Panagiotis Lafazanis, deputy labour minister Dimitris Stratoulis as well as the speaker of parliament, Zoe Constantopoulou, all called “Present”, in effect abstaining from the vote and withholding their support from the government.

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

Following the vote, where many leftists in his own party were stunned by his acceptance of previously spurned austerity measures, Mr Tsipras said he would now focus on securing a deal.

“The parliament today gave the government a strong mandate to complete the negotiations and reach an economically viable and socially fair agreement with its partners,” he said.

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

The positive evaluation by the three institutions will form a key part of discussions among euro zone finance ministers when they meet in Brussels at 3pm.

Leaders from the euro zone and the broader EU are due to meet in Brussels on Sunday. If ministers have agreed to start loan talks, leaders will have no formal decisions to make, but may want to hear more from Mr Tsipras about his plans. Without a deal, they would have to discuss how to contain the fallout a Greek bankruptcy would have on the wider European economy.

After the jubilation in Athens on Sunday following the resounding rejection of further austerity in a referendum, there was bitterness that parliament was being asked to accept a strikingly similar package of measures.

The leader of the right wing Independent Greeks party, the junior coalition party in Mr Tsipras’s government, said his party would back the proposals “with a heavy hear”“.

Five members of Syriza’s hardline Left Platform wing signed a letter saying it would be better to return to the drachma, Greece’s pre-euro currency, than to swallow more austerity with no debt write-off.

“The proposals are not compatible with the Syriza programme,” Mr Lafazanis, who belongs to the far-left faction, told Reuters before the vote.

Underlining the unhappiness of many on the left at the government’s apparent embrace of austerity, a few thousand demonstrators gathered in front of parliament before the vote to protest against the measures.

Additional reporting: Reuters