Hopes that Greece is set to remain in the euro area strengthened after the latest reform proposal submitted by the government was welcomed positively by several top European leaders, though Germany chose to tread cautiously.
Greek Prime Minister Alexis Tsipras submitted a cash-for-reforms proposal to creditors on Thursday that includes spending cuts, pension reforms and tax hikes in exchange for a 53.5 billion euro three-year bailout, a third for the country, acceptance of which will pave the way for further negotiations between both sides.
The Greek Parliament is set to discuss the proposal Friday evening and the vote outcome is expected early Saturday.
Eurozone finance ministers are scheduled meet on Saturday at 3 pm local time in Brussels to review the Greek request.
French President Francois Hollande described the Greek proposal as “serious, credible” in a Twitter post on Friday. The proposal showed “a determination to remain in the euro area,” he added.
Nothing is decided yet, everything can be done, Hollande said. He urged discussions to reach a friendly deal that respects European rules and Greeks who have suffered greatly.
Italian Prime Minister Matteo Renzi said he was more optimistic than before that an agreement will be struck between Greece and its creditors.
In a joint press conference in Rome with his Irish counterpart Enda Kenny, Renzi also expressed hope that eurozone finance ministers will reach a deal on Saturday so that a European leaders’ meeting set for Sunday can be cancelled.
A European Union official reportedly confirmed that a summit of European leaders may not be required on Sunday, if the Greek proposal is approved by euro area finance ministers in their meeting on Saturday.
Eurogroup Chief Jeroen Dijsselbloem said eurozone finance ministers are set to make a major decision on Saturday. Creditor institutions are assessing the Greek proposal and will be giving their conclusion later on Friday.
In Athens, Tsipras told his fellow Syriza lawmakers to vote in favor of the new proposal, saying that his government was never given a mandate to lead the country out of the eurozone.
Meanwhile, Germany has been less upbeat regarding the new proposal, thanks to the Greek referendum that rejected austerity measures, and their stiff opposition to any debt relief for Greece. Some other eurozone members are also likely to oppose any debt writedown for Greece.
Not surprisingly, German Chancellor Angela Merkel has been silent on Friday regarding the new proposal.
Recently, pressure has been mounting on Germany to relax its resistance to a debt haircut for Greece with both the International Monetary Fund and the U.S. urging Europe to reach a deal fast.
In early July, the IMF estimated the Greece funding requirement to be around 50 billion euros until the end of 2018.
EU officials reportedly said creditors are set to discuss Greece’s debt sustainability as well as explore providing bridge-financing to the country to meet short-term obligations. However, these discussions will take place only after an agreement is reached on providing long-term financial support to the country.
European Commission President Jean-Claude Juncker, European Central Bank Chief Mario Draghi, Dijsselbloem, European Stability Mechanism Chief Klaus Regling and IMF Managing Director Christine Lagarde were holding a teleconference on Friday to discuss the proposal.
The latest proposal placed by Athens includes value added tax hikes, spending cuts on pensions, removing tax breaks and concessions for islands and the shipping industry. It also includes a timetable for privatizations.
Economists said the new proposal is similar to the plan put forward by Juncker in June, on the day Tsipras broke off talks and surprised everyone by calling a referendum.
Complicating the picture is the fact that it was such harsh austerity measures that Greeks rejected by a massive margin of over 61 percent in the July 5th referendum.
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