An emergency summit of eurozone leaders broke up Monday night without an agreement on a Greek rescue, but there was optimism that a deal to avoid a default and exit from the euro was possible ahead of next week’s deadline.
The mood improved thanks to a new proposal from Greece calling for tax increases and steps to limit early retirement that Donald Tusk, the European Council president, called “a positive step forward” that demonstrated the “seriousness” of Alexis Tsipras, the Greek prime minister.
Jean-Claude Juncker, the Commission president, added: “I am convinced that we will find an agreement this week.”
Even Angela Merkel, the German chancellor who had gone into the summit voicing skepticism about the chances of a breakthrough, told reporters: “What Greece proposed today is a step forward … The three institutions have said the the Greek proposals are good.”
True to her cautious style, Merkel added that much work was needed to reach a deal.
Much of that work should be done at Wednesday’s Eurogroup meeting of finance ministers from the eurozone. If they can thrash out a deal, a routine EU summit starting Thursday could break the five-month deadlock between Greece and its creditors.
Greece has until June 30 to secure a final €7.2 billion tranche of bailout funds. If it does not get a cash injection very soon, it may fail to repay the International Monetary Fund €1.6 billion due at the end of this month.
If that payment is not made, the consequences could be a default and a messy Greek exit from the euro that could throw the future of the common currency into doubt, something Tusk called “a worst-case scenario.”
Greece’s creditors, led by the Commission, the European Central Bank and the IMF, have been enormously frustrated at the reluctance of the leftist-led Tspiras government to agree to deep fiscal and economic reforms, something the anti-austerity government in Athens has been balking at doing.
But as the money has run out, and public opinion in Greece showed strong support for staying in the euro, the Greek government seems to have moved some way to mollify its creditors.
The Greek government’s new proposal sent to the Eurogroup earlier Monday generally appears to be a significant improvement over earlier drafts.
According to sources close to the leaders, the negotiations were about two things: trust and austerity. Trust is what was largely lost in the past months of battles with the Tsipras government, which is why the institutions insisted on ironclad guarantees that the Greeks would not go back on their promises. The creditors want a parliamentary vote on the reform measures.
A copy of the latest Greek proposal seen by POLITICO was heavily weighted towards tax increases. The few real spending cuts result mainly from a line called “early retirement restrictions” that would save €60 million this year and some €300 million next year. A cut in defense spending would add up to €200 million next year.
The measures also include VAT reforms raising €680 million this year, and double that next year. There is also a tax on television advertising, a luxury tax and a tax on yachts. Tax collection has traditionally been a weak point of the Greek administration.
The Greek delegation came under strong pressure from countries which had undergone their own deep reforms in recent years and have since returned to growth. The Spanish feared giving in to the populist Greek Syriza party government, fearing it wants could boost support for its own leftist Podemos party.
Leaving the Monday night summit, Lithuanian President Dalia Grybauskaitė was particularly scathing.
“A lot of countries have gone through huge difficult economic crisis and we made huge adjustments,” she said. “Now what we’re hearing all the time is ‘Give us more money,’ so we’re not able to do that. It’s about responsibility.”