July 15, 2015 / 9:54 AM / 2 years ago

Reluctant Tsipras fights to pass reforms in Greek parliament

Greek Prime Minister Alexis Tsipras smiles before a ruling Syriza party parliamentary group session in Athens, Greece July 15, 2015.Yannis Behrakis

ATHENS (Reuters) - Prime Minister Alexis Tsipras fought to contain a backlash from his own leftwing party on Wednesday as parliament prepared to vote on a sweeping austerity package European partners have demanded for a new bailout to keep Greece in the euro.

The ruling Syriza party, elected in January on an anti-austerity platform, has been deeply split by the bailout deal that a reluctant Tsipras was forced to accept after grueling negotiations in Brussels this week.

More than half of the party's 201-member central committee, signed a statement rejecting the "humiliating" terms of the bailout, saying it was not compatible with the principles of the left. "This proposal cannot be accepted by the people of Syriza," they said.

With pro-European opposition parties set to back the bailout, the measures are expected to pass some time after midnight. But around 30-40 Syriza lawmakers are likely either to abstain or vote against the government, raising a question mark over how long Tsipras can remain in office.

Former finance minister Yanis Varoufakis, who was sacked by Tsipras last week, denounced the bailout as "a new Versailles Treaty" - the agreement that demanded unaffordable reparations from Germany after World War One.

Deputy finance minister Nadia Valavani resigned and Energy Minister Panagiotis Lafazanis said he would not back the deal.

"The choice between a bailout or catastrophe is a choice made in the face of terror," Lafazanis, who heads the far-left flank of Syriza, told reporters.

Even ministers supporting it could muster little enthusiasm for an accord which will impose a painful mix of tax hikes, public spending clamps and pension and labor reforms on the already severely weakened economy.

"It's a difficult deal, a deal for which only time will show if it is economically viable," Finance Minister Euclid Tsakalotos told lawmakers during a debate on reforms.

A snap election could follow if the prime minister's majority collapses.

Tsipras is expected to reshuffle his cabinet after the vote, replacing Lafazanis and Deputy Labour Minister Dimitris Stratoulis, another bailout opponent, and possibly making other changes as well.

A study by the International Monetary Fund issued on Tuesday called for much more debt relief than European countries, particularly Germany, have been prepared to countenance so far.

Berlin, which along with the other creditors knew about the IMF study before agreeing to new bailout talks, may wince at providing huge debt relief to a country it scarcely trusts to honor its promises.

But Germany insists on having the IMF in the negotiations to help keep Greece in line. It may countenance extending maturities for Greek debt but says it will not accept a writedown, with the finance ministry insisting it could not accept "a debt haircut via the backdoor".

"EUROPE'S BANKRUPT CHILD"

Given the hurdles facing the agreement, doubts have already surfaced about how long it can hold together, with one senior European Union official saying it had a "20-, maybe 30 percent chance of success".

With Greece facing an urgent deadline on July 20, when a 3.5 billion euro payment to the European Central Bank is due, European Union officials were racing to agree a bridge financing accord that would enable Athens to avoid defaulting on the loan.

There were strong objections from both Britain and the Czech Republic - EU countries that do not use the euro - to proposals to provide a 7 billion euro loan from the European Financial Stability Mechanism (EFSM), an EU-wide fund not intended for euro zone funding needs.

The European Commission published its own assessment of Greece's debt burden on Wednesday that also offered the prospect of debt relief. While also ruling out any write-offs, the Commission said debt reprofiling was possible, as long as Greece implemented the reforms it has committed to.

Fighting his own battle with Brussels to reform the EU, British Prime Minister David Cameron joined calls to give Greece debt relief but ruled out contributing to the bailout.

Washington has stepped up pressure for a deal between the euro zone and NATO member Greece. U.S. Treasury Secretary Jack Lew is making a short-notice trip to Frankfurt, Berlin and Paris this week to press for a quick agreement.

European stocks rose and bond yields fell, with investors betting parliament would back the bailout.

Although the bailout package is much tougher than the Greek people could have imagined when they resoundingly rejected a previous offer from the creditors in a referendum on July 5, most want to keep the euro.

With banks shut and the threat of a calamitous exit from the currency bloc hovering over the country if it cannot conclude a deal, many Greeks see the package as the lesser of two evils.

"We are Europe's bankrupt child and as a child, Europe has been supporting us for five years and told us what we needed to do to get out of this situation," Yannis Theodosis, a 35-year-old civil engineer. "We did nothing and now we are paying the consequences."

VOTING NO

Civil servants held a strike on Wednesday, as did pharmacists, whose industry would be opened up under the reform package. Leftwing anti-bailout groups staged protest marches, although street protests have been relatively muted so far.

The latest deal was a major capitulation from Syriza, which stormed to power promising an end to austerity. The fiery parliamentary speaker and the party's parliamentary spokesman both announced they would vote against reforms. Such outbursts had one right-wing newspaper crowing over the "civil war" engulfing the party.

Syriza's junior coalition partner said it would vote only for certain clauses in the bill, rejecting those reforms that went beyond a previous vote in parliament that had given Tsipras a mandate to negotiate in Brussels.

In recent weeks, negotiations between Athens and its creditors became increasingly fractious, with each side accusing the other of blackmail. Greece painted European countries, particularly Germany, as bullies, while the creditors said their trust in the Greek negotiators had all but evaporated.

Additional reporting by Gina Kalovyrna, George Georgiopoulos, Ingrid Melander, Angeliki Koutantou in Athens, Alastair Macdonald and Jan Strupczewski in Brussels, Madeline Chambers and Caroline Copley in Berlin, Mark John and Yann Le Guernigou in Paris, William James in London; writing by Matthias Williams and James Mackenzie; editing by Philippa Fletcher and Peter Graff

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