May 13, 2015 / 1:38 PM / in 2 years

Greece plays down referendum option, economy stutters

A Greek national flag and a European Union flag flutter outside the Maximos mansion as a government council at the Prime Minister's office takes place, in Athens May 13, 2015. REUTERS/Alkis Konstantinidis

ATHENS (Reuters) - Greece’s government on Wednesday ruled out rushing to a referendum to secure public support for unpopular reforms, opting instead to make a final push for a compromise with lenders by the end of the month.

Running out of both cash and options to pursue, Prime Minister Alexis Tsipras was to preside over his third cabinet meeting in four days later on Wednesday to seek a way out of an impasse in talks with lenders who refuse to dole out more aid.

Adding further pressure on the government, data released on Wednesday showed the country slid back into a recession in the first quarter, just months after exiting a six-year depression. Analysts blamed the 0.2 percent decline in output largely on the hit to sentiment and demand from the standoff.

For now, Tsipras’s government said its aim remained to strike a deal with its international creditors rather than turn to a referendum or early elections. At a cabinet meeting on Tuesday, Athens reiterated hopes for a deal by the end of the month - by which time it risks running out of cash without new funds.

“We are working toward an honorable compromise,” Interior Minister Nikos Voutsis told Mega TV. “An immediate recourse to a referendum or elections is not in our plans right now.”

Speculation of a referendum had grown in recent days after EU paymaster Germany suggested Greece might need one to approve painful economic reforms on which its creditors insist.

A deal with lenders has proved elusive despite months of talks because of Tsipras’s refusal to bow to demands for additional pension cuts and labor reforms making it easier to fire workers - all measures that the government says heaps unacceptable pain on a long-suffering public.

In a sign of the resistance Tsipras will face if he makes more concessions, the Communist-affiliated group PAME called on unions to stage rallies on June 11 and prepare a strike to protest any new measures accepted as part of a deal with lenders.

The government says it will not back down from its red lines, but is doing all it can to agree a deal and has called on lenders to show action from their end.

“We are speeding up, we are doing everything that has been agreed,” Nikos Pappas, a senior aide to Tsipras, told Sto Kokkino radio. “We will work with the same vigilance and determination to complete this deal despite those who want to undermine it.”

MUTUAL CONCESSIONS

Greece’s euro zone partners and the International Monetary Fund, however, accuse Athens of dragging its feet and not showing enough commitment to reforms to secure aid.

Finding a deal on Greece is taking time because it is hard to strike the right balance between the Greek government’s plans and the euro zone’s rules, ECB executive board member Benoit Coeure said. Still, the intent is to keep Greece in the euro single currency and reach a deal soon, he said.

“Let’s be clear, all those involved in the discussions want Greece to stay in the euro zone ... a Greek exit from the euro zone is not a working scenario,” Coeure told French lawmakers.

“We’re hoping to reach in the coming weeks a deal with the Greek government which can be discussed by the Eurogroup,” he said, referring to meetings of euro zone finance ministers.

Failure to strike a deal could pose disastrous consequences for Greece, which scraped through a 750 million euro debt payment to the IMF this week only by emptying out its IMF reserves to avoid touching its fast-depleting cash coffers.

Central government budget data also showed the state reduced public spending by 2 billion euros compared to the targeted level in the first four months of the year, an apparent effort to preserve cash amid the financial storm.

Additional reporting by Jean-Baptiste Vey in Paris, writing by Deepa Babington

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