Hope for Greek economy rises after Athens offers new belt-tightening

Hope for Greek economy rises after Athens offers new belt-tightening
Greeks in favor of remaining in the Eurozone demonstrate in front of the parliament in Athens, singing the national anthem as they carry a giant Greek flag. (Louisa Gouliamaki / AFP/Getty Images)

Greek officials broke a stalemate in negotiations with European creditors on Monday by offering more budget cuts and pension reform, spurring hopes -- once again -- that the Balkan nation's membership in the euro currency alliance may survive its five-year economic crisis.

After angering lenders by refusing to make new concessions at recent talks, the Greek delegation unveiled plans to fellow Eurozone finance ministers meeting in Brussels for new business and luxury taxes and a clampdown on early retirement that has swollen the pension rolls to unsustainable numbers.


The move away from a stubborn impasse prompted officials of the 19-nation common currency union to express new hope for averting a Greek default on bailout loans at the end of this month, as well as stanching a mounting run on euro deposits in Greek banks.

Greece owes the International Monetary Fund a $1.8-billion payment by June 30 but has too little money in state coffers to meet that obligation without further borrowing. The IMF and other institutions that oversee Greece's debt have been holding up disbursement of the last $8.1 billion left in the bailout program that expires in a week to pressure Athens officials to promise further belt-tightening to stabilize domestic finances.

Greek Economy Minister Giorgos Stathakis told the BBC that the European finance ministers appeared to be confident that the new proposals provided the basis for an agreement later this week. He also said the latest offerings stayed true to the radical-left Syriza government's vows to protect the income of those already retired on pensions and to reject utility price hikes that would disproportionately hurt the poor.

Stathakis said the Athens government was attempting to shift the tax burden from pensioners and wage-earners to businesses and the wealthy. New taxes on hotels and other discretionary spending are among the fresh proposals.

Eurozone chief Jeroen Dijsselbloem told journalists covering the latest last-ditch meeting that the Greek budget revisions appeared "comprehensive" enough to give hope of reaching an agreement on averting default by the end of this week. European Council President Donald Tusk expressed relief at seeing "the first real proposals in many weeks."

But Greece and the "troika" of lenders to which it owes $270 billion have much work remaining to clear the way for a new bailout program to replace the one expiring in a week.

German Chancellor Angela Merkel hinted that there may be some wiggle room on the followup program but, like the other alliance officials, appeared to make any deadline concessions contingent on European Union leaders being convinced that the latest proposals from Athens will provide sustainable balance to the national budget.

Greece has been borrowing from its neighbors for the past five years to stay apace with loan payments while trimming expenses in an effort to boost income and lead to eventual economic self-sufficiency. But many economists say the austerity measures demanded by the creditors have led to a 25% contraction of GDP since 2010 and driven up unemployment to nearly 26%.

Prime Minister Alexis Tsipras and his Syriza party won election in January by promising an end to the painful cutbacks in state employment and services while assuring voters that Greece would be able to remain in the Eurozone on easier terms.

Even with the somewhat improved outlook for averting default, the Greek economy remains poised at a perilous precipice.

Fearing that the European Central Bank will eventually halt its emergency infusions of euro cash into Greek banks, depositors have been pulling their euros out of national banks at an alarming rate. At least $4 billion was removed from Greek accounts last week as the outlook for a new bailout agreement by June 30 looked grim.

Tsipras made his second visit to Russia in less than three months last week for talks with President Vladimir Putin that were seen as an exploration of what the two countries with troubled relations with the EU could do to help each other. Russia wants relief from sanctions imposed by the Western alliance for its role in the Ukraine crisis, which Greece could have delivered by voting against the six-month extension that was approved on Monday and required unanimous agreement among the 28 member states.

Tsipras went home from his meetings in St. Petersburg with a $2.77 billion contract to build and operate part of Russia's planned new pipeline system that would bypass Ukraine, where existing lines for delivering natural gas to Western Europe are located.

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