Greeks signal opposition to plan that would avert looming default

With the threat of economic catastrophe less than four days away, Greek officials and their international creditors continued to clash Friday over how to raise the money the Balkan nation needs to keep up with debt payments and get an extension on its bailout program.

Early Saturday, after an emergency Cabinet meeting in Athens, Prime Minister Alexis Tsipras announced he would call a referendum July 5 to poll Greeks’ willingness to endure more budget and services cuts. The nation’s development minister urged voters to say “no.”

The differences between the budget-balancing visions of Greece’s radical leftist government and the “troika” of lenders owed $270 billion boil down to the former seeking to put the austerity burdens on profitable businesses and the creditors demanding cuts to pensions and government salaries.

While no formal negotiations took place on Friday, the Greek delegation reportedly submitted a slightly revised proposal with concessions on raising the retirement age and eliminating pension supplements for the lowest earners. But Athens reportedly hasn’t budged in its insistence on raising the money it needs on the backs of business.

There were also reports by European media of an offer from the creditors to extend Greece’s bailout program by five months, until November, and provide an additional $13.4 billion to help Athens meet its obligations, on condition the heavily indebted country commit to a strict timetable for budget reforms.

Tsipras denounced the creditors’ insistence on more budget cuts as “an ultimatum that is against the values of Europe.” And in a move apparently aimed at getting another week’s delay in making a $1.8-billion debt payment, Tsipras announced he would call a referendum to measure public support for the new belt-tightening demands. There was no immediate word from the creditors, who have insisted on a viable and politically endorsed reform plan by Tuesday.

Greek Development Minister Panagiotis Lafazanis predicted that his countrymen would answer “with a resounding no,” the Associated Press reported from the emergency session that ended in the wee hours Saturday.

Tsipras and his Syriza party came to power in January after campaigning on promises to ease the painful austerity measures imposed by the creditors overseeing the bailout program. Five years of cuts to the government payroll and public services have contributed to Greece’s economy contracting by 25% since 2010 and job losses that have left 26% of working-age Greeks unemployed.

Tsipras and his delegation to the negotiations raised hopes early this week with new offers to boost business taxes and raise enough future revenue to persuade the creditors to release the last $8 billion left in the bailout fund before the rescue program expires Tuesday.

But officials of the lending institutions -- the International Monetary Fund, the European Central Bank and the European Commission -- have said they fear putting the burden on business will suppress growth and scuttle long-term prospects for economic stability in Greece. The creditors want Athens to accelerate its plan for raising the retirement age to 67 and to phase out “solidarity grants” currently paid to retirees with the lowest incomes.

That divergence of priorities led the two sides to an impasse Thursday. The talks in Brussels between Greek officials and the foreign ministers of the other 18 countries that use the euro common currency failed to produce a plan to secure enough new borrowing to make the $1.8-billion payment on IMF debt due by Tuesday.

“We’re expecting the payment to be made June 30,” IMF spokesman Gerry Rice said at the fund’s headquarters in Washington, making clear that there will be no grace period offered to Athens.

Tuesday is also the last day of the current bailout program, and if no deal has been reached on an extension or renewal, the $8 billion left in the fund will revert to the lenders and Greece will be cut off from further operating funds and cash infusions to keep the banks solvent.

Fear of that default has already caused a run on euro deposits in Greek banks over the last two weeks, compelling the European Central Bank to provide almost daily emergency liquidity funds to deter full-scale panic. If the bailout program expires and Greece misses its Tuesday debt payment, the ECB would have neither obligation nor interest in providing more euro infusions, forcing Athens to issue a national currency that would quickly lose value versus the euro.

Tsipras and Greek Finance Minister Yanis Varoufakis have been resistant to the creditors’ insistence on spending cuts, in particular any that would hurt already struggling pensioners, in a standoff that suggests they expect their Eurozone colleagues and creditors to make further concessions to protect the integrity of the common currency union. Analysts are divided on how widespread would be the economic fallout if Greece were to drop out of the Eurozone but many think the other Eurozone countries are loathe to gamble on an assumption that there would be little or no damage to their own well-being.

Leaders of the 28-nation European Union met in Brussels on Thursday for their semi-annual summit and issued a stern message to Greece and its European creditors to get a deal done this weekend.

“Leaders expect the Eurogroup to conclude this process at their meeting on Saturday,” European Commission President Donald Tusk said early Friday.

Even if the Greek delegation manages to agree with the lenders on the reforms needed to get the last of the bailout funds released so Athens can make its IMF payment, the deal would still face hurdles in getting endorsement by the Syriza-dominated parliament. Many of the deputies elected for their promises to get austerity eased could face public backlash and ouster if they give their approval to the deeper and even more painful cuts demanded by the lenders.

A copy of the latest proposal submitted by Athens, obtained by Britain’s Financial Times and posted on the newspaper’s website, suggests that the Greeks have retreated from some earlier concessions to end special tax exemptions for Greek islands and raise taxes on processed foods.

Those backtracks, coupled with Athens’ continued refusal to make spending cuts instead of tax hikes, could scuttle the weekend talks and the prospects for averting default -- unless other Eurozone countries want to keep Greece within the currency alliance more than the Greeks themselves want to stay in.

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