Tensions high as Greece scrambles to keep rescue deal alive

By Ambrose Evans-Pritchard, in Athens 23 February 2015

The radical Syriza government submitted a five-page list of measures to EMU officials in Brussels in time for a deadline on Monday

Anti-austerity protestors in Athens. The most contentious elements of Greece's 'second pillar' for economic policy have been shelved or toned down Photo: AFP

Greece has vowed to shake up labour markets and push through far-reaching reforms to avert a fresh showdown with Eurozone creditors this week, hoping to stave off bankruptcy within days as cash runs dry.

The radical Syriza government submitted a five-page list of measures to EMU officials in Brussels in time for a deadline on Monday, including an assault on trade union powers that risks setting off a revolt by the movement's Communist and hard-left factions.

Failure to reach an agreement would lead to yet another round of crisis talks, backed by the threat that the European Central Bank could at any time cut off emergency liquidity support for Greek lenders and effectively force the country out of the euro.

European officials said the Greek list had run into reservations at its first hurdle with technocrats in Brussels, causing a delay. This is even before it goes to Eurozone finance ministers on Tuesday, where the reception may be frigid. There is pervasive concern that any deal will unravel within weeks even if there a reprieve now.

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The deal aims to give Greece four months breathing room to flesh out its plans. It requires the approval of all the EMU parliaments, including the German Bundestag, where Chancellor Angela Merkel faces her own headaches if the terms are not tough enough.

Bavaria's Social Christians (CSU), her coalition allies, reacted angrily to claims by Greek premier Alexis Tsipras that Athens had scored a major victory over European creditors last Friday. "If Mr Tsipras is now saying that austerity is over in Greece, and if he is saying he has won the battle, all the alarms must go off," said Gerda Hasselfeldt, the CSU's parliamentary leader.

The neuralgic issue for the Greek left is a proposal in the list for "smart" rules on collective bargaining that hint at the firm-level and factory-level wage deals implemented in Germany under the Hartz IV reforms. Syriza had campaigned to restore full union powers that were rolled back by the Troika.

Panagiotis Lafazanis, head of the Left Platform and now the production minister, said his grouping cannot accept any departure from a "radical left orientation". He vowed to press ahead with new laws freezing foreclosures on primary homes and stretching out payments on €74bn of tax arrears. The Left Platform controls 30pc of the seats on Syriza's central committee.

Syriza leaders are alarmed by a cri de coeur on Sunday by Euro MP Manolis Glezos, the legendary resister who tore down the Swastika flying over the Acropolis under Nazi occupation.

He apologised to voters for selling the "illusion" that Syriza could overthrow the EU-IMF Troika. "There can be no compromise between oppressor and oppressed. Freedom is the only solution for the slave," he said.

Syriza sources expect party discipline to hold despite "kicking and screaming" from the Left. The labour reforms are to be carried out with the worker-friendly International Labour Federation instead of accepting the harsher variant of the IMF under the Troika. The OECD will "mentor" measures to boost productivity.

Greek officials say the package will uphold the "first pillar" of Syriza's Thessaloniki Programme for humanitarian needs, costing €1.8bn. This includes free electricity and food stamps for 300,000 for the indigent, and a pension boost for the less well-off.

The most contentious elements of the "second pillar" for economic policy have been shelved or toned down, such as plans to scrap a new tax on first homes (ENFIA) and boost income tax thresholds to €12,000.

Privatisations under way will be respected. New sales will be reviewed. The state will keep control of strategic companies and utilities.

There will be a new regime for state procurements, which gobble up 15pc of GDP. The financial crimes squad will be revamped, with a crackdown on smuggling for shipping fuel. Fuel tankers will have to carry GPS devices. Tax loopholes preserved by Greece's ruling dynasties until now will be attacked.

"This is a fresh start for us. The Greek people will have the opportunity to co-author our 'contract' with Europe," said the finance minister, Yanis Varoufakis, in an interview with CNN.

Syriza will press ahead with a rise in the minimum wage, though the list does not specify the figure of €750 a month in the manifesto. The International Monetary Fund warned that any rise will make it even harder to combat unemployment stuck at 24pc. It says the current level is already on the high side, given Greek productivity.

The package is just a starting point. It will face fresh hurdles, amid a mood of zero-tolerance in northern Europe. Walter Bosbach, interior spokesman for Germany's Christian Democrats, said the terms are far too vague to pin down Syriza, and accused the Greeks of promising anything to get more money. "Billions more are going to be flowing to Greece. It is highly unclear whether we will get anything back from this," he said.

Germany may be right to suspect that Syriza has slipped the austerity leash. The deal scraps Troika demands for a rise in the primary budget surplus from 1.5pc of GDP in 2014 - in reality nearer 0.6pc - to 3pc this year, and 4.5pc next year. The surplus will now be "appropriate" to economic circumstances.

Dimitris Drakopoulos, from Nomura, said relations between Athens and EMU creditors could go wrong at any time. Syriza will have to deliver on pledges with actual legislation to meet a deadline in April before it receives the next €7.2bn of bailout money. In the meantime, Greece may face "cash flow problems" within 15 days. Syriza will need to raise €4bn to €5bn by the end of March in a hostile market. "The risk of capital controls remains elevated," he said.

Mr Drakopoulos warned that there will be a constant risk of a "new stand-off" until the political landscape changes again, perhaps with a national unity government. There may yet be a referendum on the bailout package. "Very soon the Syriza-led government will be forced to face its own contradictions," he said.

Tensions high as Greece scrambles to keep rescue deal alive - Telegraph