Greek Prime Minister Calls for Referendum on Bailout Terms

http://www.nytimes.com/2015/06/27/business/international/greek-debt-talks-enter-final-stages.html

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ATHENS — In an unexpected move, Prime Minister Alexis Tsipras went on national television early Saturday to call for a referendum on July 5, so that Greek citizens can decide whether to accept or reject the terms of a bailout deal proposed by the country’s creditors.

With his speech, Mr. Tsipras upends the stalemate in negotiations between Greece and its creditors, throwing into doubt whether Greece will be able to make a 1.6 billion euro debt payment that is due on Tuesday to the International Monetary Fund, while also deepening concerns that the beleaguered country could leave the eurozone.

Mr. Tsipras said he was calling the referendum because Greece’s creditors — the I.M.F., the European Central Bank and the eurozone countries — had refused to negotiate in good faith and present a fair compromise.

“After five months of tough negotiations, our partners ended up with a proposal in the form of an ultimatum,” Mr. Tsipras said, arguing that the creditors were calling for “new, unbearable measures,” including cuts to pensions, salaries and tax increases.

“The goal of some of Greece’s partners is the humiliation of an entire nation,” he added.

For Mr. Tsipras, the bold move is rooted in his political predicament. He led the leftist Syriza party to victory in January after promising voters that it would reverse austerity and ease punishing economic policies toward the poor.

But the negotiations with creditors have forced him to make numerous concessions, whether on changing pension programs, raising taxes or privatizing state assets.

His staunchest supporters had warned that Mr. Tsipras could only be pushed so far. Apparently, Mr. Tsipras decided that his political legitimacy depended on leaving the ultimate decision on the creditors’ proposal to voters, despite the potential upheaval of holding a referendum at such a critical time.

European finance ministers had been scheduled to meet for a final round of negotiations in Brussels on Saturday, but Mr. Tsipras said he would convene Greece’s Parliament and ask lawmakers to vote on whether to hold the referendum, which would ask Greeks to decide whether they accept the creditors’ proposal.

Mr. Tsipras said that he had relayed his decision to Chancellor Angela Merkel of Germany, President François Hollande of France and Mario Draghi, head of the European Central Bank. He said he would send letters to Greece’s creditors on Saturday asking that they allow the country’s bailout program — scheduled to end on Tuesday — to be extended “for a few days” so that Greek voters could decide on the referendum.

Mr. Tsipras used his speech as another opportunity to lash out at the I.M.F., which has pushed hard for cuts to public spending. He declared that the creditors’ proposal reflected “the I.M.F.’s fixation on tough and punishing austerity.”

Nikos Pappas, minister of state and a member of the Greek negotiating team, took a similar tone in a statement after the premier’s speech, saying the creditors’ proposal was “not in keeping with the popular mandate and the future of growth in Greece.”

Mr. Pappas also called on “extreme circles not to play with the stability of the common currency.” He added: “Whoever flirts with extreme scenarios has a historic responsibility. They should not play with the deposits and the peace of mind of citizens,” he said, shortly before Greek television aired images of Greeks lining up at bank A.T.M.s.

Friday was a day of tough negotiations in Brussels, with creditors and European leaders suggesting that Greece now had to decide. Ms. Merkel indicated that creditors had made their final offer to ease Greece’s debt crisis, on terms she described as “extraordinarily generous.”

Her finance minister, Wolfgang Schäuble, was less subtle, saying in a separate news conference, “No one country in a currency union can endlessly spend money at the cost of the others.”

That final offer — detailing the economic changes Greece must make to receive additional money — was extended to Mr. Tsipras when he met with Ms. Merkel and Mr. Hollande on the sidelines during the negotiations, Ms. Merkel said. When asked by a reporter whether there was a Plan B, Ms. Merkel said simply, “No.”

Leaving the meeting, Mr. Tsipras still gave no indication of being ready to settle. But he might still have considerable leverage as the talks go down to the wire. Eurozone lenders are wary of letting Greece go bankrupt and potentially become the first country forced out of the eurozone, membership in which is meant to be irreversible.

The opposing comments of the two sides indicated the large gulf that remained between Greece and the creditors. After the announcement of the referendum, Mr. Tsipras’s office confirmed that he would send Deputy Prime Minister Yannis Dragasakis and another top aide, Euclid Tsakalotos, to meet with Mr. Draghi on Saturday.

Antonis Samaras, the leader of the main conservative opposition party New Democracy and the former prime minister, said Mr. Tsipras was “bringing the country into a total deadlock.”

The question that will be posed in the referendum called by Mr. Tsipras, he said, “is essentially yes or no to Europe.”

Among eurozone countries, Germany is Greece’s biggest creditor, and the one that has been most willing to express its impatience with Mr. Tsipras’s leftist government. In the months since it came to power in January, the Tsipras administration has sought to renegotiate the terms of a bailout program agreed to by previous Greek governments.

Hanging in the balance is a remaining €7.2 billion or $8 billion, tranche of loan money that Athens desperately needs.

If there is no resolution to the standoff, Greece will not have enough money to service its loans — including a payment of about €1.5 billion to the I.M.F. on Tuesday — or, soon, to pay government salaries and pensions.

Two of the sticking points have been how much Greece is willing to cut costs by revamping its national pension program, and how the country plans to revise its notoriously porous tax collection system.

In its latest offer, Greece conceded to lenders’ demands for restaurants to be subject to the highest value-added tax rate — 23 percent — as long as hotels remain in the middle rate of 13 percent. But Greece insisted on keeping a 30 percent discount currently in place on all value-added tax rates in its Aegean Islands.

On the politically explosive issue of pensions, Greece has agreed to phase out a special grant program for pensioners on low incomes by the end of 2018 — a year earlier than creditors have demanded. But Athens still objected to lenders’ demands for immediate cuts to pension payments.

As for another contentious issue — corporate taxes — the Greeks have suggested increasing it by 2 percentage points to 28 percent, instead of 29 percent as foreseen in their original proposal, which creditors rejected over fears that raising the business tax rate would impede economic growth.

By some measures, the differences in the proposals might seem incremental enough that compromises should be within reach. But at this point there may be more fundamental issues, like trust, that will need to be addressed if a lasting agreement is to be struck.

One idea being floated by negotiators on Friday was to extend the current bailout program for five additional months, with €15.5 billion in funding. But rather than keep the current program in place, Greece would prefer eventually to reach a new arrangement altogether — one without the austerity-budget conditions that the Tsipras government finds so onerous.

“The government does not have a popular mandate, nor the moral right, to sign a new memorandum,” a Greek official said, speaking on condition of anonymity as is the government’s policy.

Asked about the state of the talks with Greece, Mr. Schäuble, Germany’s finance minister, said at a news conference in Frankfurt on Friday that Greece should follow European rules or face the consequences.

“When you are driving down the autobahn, and everyone else is driving in the opposite direction, you may think that what you are doing is right, but you are still wrong,” he said.