Greece mulls last-ditch Proposals to avoid Collision with Bailout Creditors

Greece’s government is considering new fiscal proposals to avoid a collision with its creditors on Monday, in what could be a last-ditch effort to avert capital controls and a debt default, according to two Athens officials.

Government members are putting together a plan they hope would achieve the budget targets that the country’s bailout creditors want, while relying more on eliminating tax breaks and less on pension cuts than the lenders’ proposal, the officials said.

The Greek cabinet is due to discuss the proposals on Sunday morning. It isn’t clear whether the cabinet under Prime Minister Alexis Tsipras will endorse the plan, which was being prepared on the weekend by Deputy Prime Minister Yannis Dragasakis and others who are considered among the more pragmatic members of the leftist Syriza-led government.

Greece is under heavy pressure to convince its creditors it can hit ambitious fiscal targets ahead of scheduled meetings on Monday of eurozone finance ministers and, later in the day, of eurozone heads of government.

Finding measures to reach those fiscal targets has become to crucial condition for unlocking fresh bailout financing for Greece, without which the country would have to default on its debts in coming weeks, including loan repayments to the International Monetary Fund on June 30 and on bonds held by the European Central Bank in July and August.

Failure to agree on Monday could quickly lead Greece to establish capital controls, European officials said. The ECB increasingly has become impatient with what it sees as Tsipras’s stonewalling and anti-creditor rhetoric at a time when deposits are fleeing from Greek banks at a rate of around EUR1 billion a day, the officials said.

A summit failure on Monday could well prompt the ECB’s governing council to limit the provision of central-bank liquidity to Greek banks as early as next week, the officials said. Such a move would force Greece to cap bank withdrawals, money transfers abroad and other financial transactions, plunging Greece’s economy deeper into recession.

The fresh Greek proposals include elimination of many tax breaks, including scrapping exemptions for taxes on income, capital, fuel, retail sales and other levies. The extra revenues that this move could achieve, some officials hope, would allow shallower cuts in pensions, which could make the overall package less politically painful for the government.