Greek prime minister Alex Tsipras ran into new roadblocks on Wednesday in his daunting and potentially explosive task to complete a deal with Greece's creditors and pass legislation to approve that deal within the next four days.
Before he left for Brussels in the morning, Mr. Tsipras said that Greece's creditors had complained that some parts of Greece's latest proposal for a new bailout plan were inadequate.
"The repeated rejection of equivalent measures by certain institutions never occurred before, neither in Ireland or Portugal," he said. "This curious stance may conceal one of two possibilities: Either they don't want an agreement or they are serving specific interest groups in Greece."
The creditors – the European Union, the European Central Bank and the International Monetary Fund – reportedly want the Greek government to rely less on taxation and more on spending cuts in its new austerity plan. The government, for instance had proposed hiking the corporate tax rate to 29 per cent from 26 per cent. The creditors want a 28-per-cent rate, meaning Greece would have to fund the difference elsewhere.
The creditors also want a more aggressive pension cuts than Athens had proposed. Pension reform has emerged as a potential deal buster – the Greek government has called it a "red line" issue.
In spite of the gap between the two sides, many analysts and economists expect the new package to approved by euro zone finance ministers, even if they are not ruling out another negotiating collapse. If the euro zone finance ministers approve any revised proposal tonight, the package would go to the European Union summit on Thursday.
The tax measures include a broader value-added tax (VAT), a higher land tax and a wealth tax. They would go along with a levy on companies with annual income of more than €500,000 ($700,000) and steps to eliminate early retirement options. The measures would raise €7.9-billion over 2015 and 2016 – a significant amount for a small economy trapped in recession. If the reforms are approved by euro zone finance ministers, the EU leaders and the Greek parliament, Greece will receive €7.2-billion in loans that had been held back from the current bailout, which expires on June 30.
The loans, however, may not arrive in time for Greece to meet a payment deadline to the IMF on the same day. The IMF is owed €1.6-billion and managing director Christine Lagarde has said she will give Greece no payment leeway. But her stance is bound to change if the new bailout measures are approved by all sides by early next week.
Assuming Mr. Tsipras secures approval for his new deal with creditors in Brussels this week, the Greek parliament must accept or reject the new bailout measures. That vote is expected Sunday or Monday. The creditors have made it clear that the measures have to be cleared in Athens before they go to the national parliaments in the euro zone for approval.
Mr. Tsipras will inevitably lose support form the hard left wing of Syriza, which will criticize him for accepting a deal that he had campaigned against during the January election. Mr. Tsipras and his Finance Minister, Yanis Varoufakis, had pledged to end the austerity measures that they claimed were deepening the recession and raising the jobless rate to the highest in the Western world. "A political crisis is about to replace the economic crisis," said a euro zone official who did not want to be quoted by name. "My bet is that Tsipras will face elections soon."
Syriza's Left Platform has 40 members. If Mr. Tsipras loses their votes, he will have to make them up among the opposition parties. "It will remain a major challenge for the Greek Prime Minister to successfully pass a potential agreement through parliament," Deutsche Bank analyst George Saravelos said in a note. "How the political process plays out largely depends on the number of parliament members the current government loses."
Mr. Tsipras will probably gain the support of a couple of opposition parties, including the centre-right New Democracy, which led the previous government and which had been largely in favour of accepting new bailout terms aimed at keeping Greece solvent and inside the euro zone.
But support from the opposition parties would, at the same time, show voters that Mr. Tsipras, in accepting new bailout terms that include deeper austerity measures, had abandoned some or all of his election pledges. "This will undermine him completely," said the euro zone official.
There are already rumours that Mr. Tsipras is prepared to start his own centre-left party, one that would be shorn of the hard-left contingent, and call an election in the early autumn.