Saturday 1 October 2016

Greek crisis: hopes of a deal with new proposals on the table as creditors offering a five month extension

Greece agree to cut pensions to level close to what creditors demand

Published 26/06/2015 | 14:16

A dog sleeps as a woman withdraws money from an ATM in Athens, Greece REUTERS/Marko Djurica
A dog sleeps as a woman withdraws money from an ATM in Athens, Greece REUTERS/Marko Djurica

Greece and its international creditors have moved closer to a deal which would allow the cash-strapped country to avoid a default and stay in the euro currency club, officials said.

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Greece has agreed to cut pensions to a level close to what creditors have demanded before they release new loans, officials said. The move comes days after Greece agreed to €8bn in austerity cuts and new taxes over two years.

After the first Greek proposal, Germany and other creditors, particularly the International Monetary Fund, were concerned Athens would rely too much on business taxes that could hurt growth. They insisted Greece had to do more.

The latest proposals brought PM Alexis Tsipras and the European institutions much closer together, enough for some to anticipate that an emergency meeting of the eurozone's 19 finance ministers tomorrow could bring a decisive breakthrough.

Read more: Greece crisis: Merkel tells Tsipras to 'shut up', Varoufakis says committed to eurozone

"Tomorrow's meeting is of decisive character," German chancellor Angela Merkel said after meeting Mr Tsipras and French president Francois Hollande.

Greek Prime Minister Alexis Tsipras, Italian Prime Minister Matteo Renzi and German Chancellor Angela Merkel share a joke before getting down to negotiations at the EU leaders' summit in Brussels
Greek Prime Minister Alexis Tsipras, Italian Prime Minister Matteo Renzi and German Chancellor Angela Merkel share a joke before getting down to negotiations at the EU leaders' summit in Brussels

Under the latest proposal, Athens said it will cut the contribution from the Greek state to pensions by between 0.25pc and 0.5pc of GDP this year and by 1pc next year.

An official from one of the creditor institutions said that if you assess both sides "the difference now is very, very small".

Creditors are planning for the Greek parliament to pass "prior actions" to partially release the funds needed to pay back the IMF on Tuesday, reports suggest this afternoon. 

This would then be followed by a staggered timetable which could see more cash injected in order to meet summer debt repayments, and result in a five-month extension which takes them into November.

The cash would come from a variety of sources. They would include the €7.2bn Greece is owed as part of its current bail-out package, around €1.8bn from the ECB who are holding profits they have made from Greek bonds, and some further funds earmarked for Greece as part of Europe's rescue fund.

German chancellor Angela Merkel said that she encouraged Tsipras to accept this "generous offer" from the creditors that is on the table.

She also said that creditors have made concessions on Greece, and now it's time for them to "make a similar step forward".

Megan Greene, chief economist at Manulife Asset Management, said: "The gap between Greece and its creditors looks much smaller now that Greece has caved on some of its proposed pension reforms."

Mr Tsipras earlier met Ms Merkel and Mr Hollande on the sidelines of a European summit in Brussels as talks on unfreezing the country's bailout loans were at an impasse.

Read more: Greece crisis: Noonan forced to defend 'pro-German' stance at EU debt talks

Greece could be in arrears of payment to the IMF as soon as Tuesday, when it has a debt repayment of €1.6bn.

Negotiations have stumbled on what economic reforms Greece must make in return for the remaining €7.2bn in its international bailout programme.

Should it default on its debt, Greece could eventually have to leave the euro. That would probably plunge the country back into a deep and long recession and shake European and global markets.

European leaders have demanded finance ministers from eurozone countries reach an agreement tomorrow on the reforms Greece must make to unfreeze its bailout loans.

Press Association

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