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Greece racing against time to finalize reforms – Desperate bid to stave off catastrophic exit from Europe

Members of the Greek Cabinet applaud as Greece’s Prime Minister Alexis Tsipras arrives at the Greek Parliament in Athens

Members of the Greek Cabinet applaud as Greece’s Prime Minister Alexis Tsipras arrives at the Greek Parliament in Athens

ATHENS: Greece’s government was racing yesterday to finalize a plan of reforms for its third bailout, hoping this time to get its European partners’ approval and to stave off a looming, potentially catastrophic exit from Europe’s joint currency, the euro. Details of Greece’s reforms were to be submitted later to give creditors time to review them ahead of a summit of the European Union’s 28 members on Sunday.

Hopes for a deal rose after Donald Tusk, who chairs the EU summits, said Greece’s plan would have to be accompanied by creditors’ suggestions on how to make the country’s debt manageable in the longer term. “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation,” Tusk said. Easing the terms of Greece’s existing bailout loans has been a key dividing issue in the bailout talks for months - with Greece and the International Monetary Fund pressing in favor and key European states like Germany resisting the idea. Tusk’s comments boosted confidence that the sides will be able to find a compromise. The Stoxx 50 index of top European shares jumped 2.6 percent.

Prime Minister Alexis Tsipras met with finance ministry officials and was holding a cabinet meeting Thursday afternoon to finalize his country’s plan, a day after his government requested a new three-year aid program from Europe’s bailout fund and promised to immediately enact reforms, including to taxes and pensions, in return. The last-minute negotiations come as Greece’s financial system teeters on the brink of collapse. It has since June 29 put limited cash withdrawals to 60 euros ($67) per day to stanch a bank run.

The banks and the stock market have been shut for just as long. The closures, which have been extended through Monday, have led to daily lines at ATM machines and have hammered businesses. Payments abroad have been banned without special permission. “Can you see anybody in the shop? Nobody’s coming in, because everyone’s living off a drip,” said Magda Petridi, a fortune teller who runs a shop selling good luck charms, aromatic oils and trinkets. “Until a month ago business was going pretty well.”

Rush on banks
Pensioners without bank cards have been particularly hard hit as they have struggled to access their accounts. Some branches have been opened so the elderly and unemployed without bank cards can withdraw a maximum weekly sum of 120 euros each. Hundreds lined up outside banks yesterday morning, many facing hours-long waits in the heat. Meanwhile, many ATMs had a shortage of 20 euro notes, effectively reducing the daily withdrawal limit to 50 euros.

If Tsipras does not get a deal, Greece faces an almost inevitable collapse of the banking system, which would be the first step for the country to fall out of the euro. “I believe he will have to get an agreement. We will pay dearly for it, but at least we’ll get an agreement,” said mechanic Pantelis Niarchos, walking down the street in central Athens. After months of fruitless negotiations with Tsipras’ government, elected in January on promises to repeal bailout austerity, the skeptical euro-zone creditor states have said they want to see a detailed, cost-accounted plan of the reforms.

Greece’s financial institutions have been kept afloat so far by emergency liquidity assistance from the European Central Bank. But the ECB has not increased the amount in days, leaving the lenders in a stranglehold despite capital controls. German ECB governing council member Jens Weidmann argued yesterday that Greek banks should not get more emergency credit from the central bank unless a bailout deal is struck. He said in a speech it was up to euro-zone governments and Greek leaders themselves to rescue Greece.

The central bank “has no mandate to safeguard the solvency of banks and governments,” he said. The ECB capped emergency credit to Greek banks amid doubt whether the country will win further rescue loans from other countries. The banks closed and limited ATM withdrawals because they had no other way to replace deposits. Weidmann said he welcomed the fact that central bank credit “is no longer being used to finance capital flight caused by the Greek government.” —AP

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This article was published on 09/07/2015