Negotiations hang in balance after ESM’s freeze of debt relief measures

Greece’s negotiations with international creditors took a turn for the worse Wednesday after the European Stability Mechanism (ESM) shelved a recently announced debt relief package in protest at the government’s plan to give a one-off supplement to low-income pensioners and to keep in place a discount in valued-added tax, to eastern Aegean islands, it had agreed to scrap as part of its bailout commitments.

And in what is widely seen as act of defiance, Prime Minister Alexis Tsipras has called for a roll call in Parliament Thursday over the measures he announced last week in a televised address. The move by Tsipras seeks to stick to an election pledge to revive a Christmas bonus that had been scrapped by international creditors.

Given that polls have suggested that New Democracy holds a double-digit lead over ruling SYRIZA, several analysts have claimed that the impasse may lead to early elections, which is something Tsipras has not ruled out in recent comments.

Government officials have insisted that the measure will not impact fiscal targets but eurozone creditors, who were not consulted about the move, are demanding more information as to whether it will pose a threat to the country’s financial targets.

The eurozone’s tough reaction gained added significance as it came a day before the year-end European Union summit, where Tsipras is set to outline the financial situation of the Greek economy to other leaders.

Senior European officials said Wednesday the measures appeared to be in breach of the terms of the country’s third bailout, which was hammered out in July 2015.

“The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” said a spokesman for Eurogroup chief Jeroen Dijsselbloem, while a spokesperson of German Finance Minister Wolfgang Schaeuble said he is awaiting a speedy clarification of what the Tsipras amendment entails so that implementation of the debt relief measures is not delayed. It is imperative, he said, for the success of the Greek bailout program that there are no unilateral actions.

EU Financial Affairs Commissioner Pierre Moscovici struck a more conciliatory note, saying that from his perspective, the terms of the bailout agreement “had not been breached by the measures decided upon by the Tsipras government.”

Finance Minister Euclid Tsakalotos said that once Greece was given the chance to explain its case it would become clear that the measures are indeed within the bailout framework.

Opposition New Democracy hinted it could back the measures “on the grounds that they will help people” hard hit by the financial crisis, but denounced the way the government has handled the issue. The conservatives said they will decide Thursday if they will offer their support in Parliament.

“We have to help people. But it’s one thing to help weak people and another to do it in a way that endangers the country,” said New Democracy vice president Adonis Georgiadιs.