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Greek debt proposal raises hope for a deal, but at a political price (+video)

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Emilio Morenatti/AP

(Read caption) A pro-Euro demonstrator, wearing a T-shirt depicting the one Euro coin, holds a European Union flag during a rally at Syntagma square in Athens, Thursday, July 9, 2015. Greece's government is racing to finalize a plan of reforms for its third bailout, hoping this time the proposal will meet with approval from its European partners and stave off a potentially catastrophic exit from Europe's joint currency, the euro, within days.

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Greece's latest bailout request may have boosted its chances for continued inclusion in the eurozone and a brake on its economic tailspin. Its official creditors are studying Athens’s proposal ahead of crucial weekend meetings. 

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But the plan includes many elements rejected by Greek voters in a referendum last weekend. Greek Prime Minister Alexis Tsipras, who had urged voters to reject the previous bailout, must now go to parliament to seek approval. 

Finance ministers from across the eurozone are meeting in Brussels on Saturday to discuss Greece’s debt and whether to grant its request to negotiate another bailout loan. An emergency meeting of officials from all European Union members is scheduled for Sunday. 

Athens appears to have given in on two main sticking points, reports The New York Times: tax and pension overhauls and a demand for debt restructuring. The new proposal includes items such as tax hikes, cuts on defense spending, and the privatization of ports and airports.

The proposal, details of which leaked out late Thursday, has received praise from a number of eurozone leaders including the Austrian chancellor, Italian prime minister, and French President Francois Hollande, who called the proposed program, “serious and credible.”

Amid rising speculation in European capitals that Greece would be forced to exit the European Union because it was unable to agree terms with its creditors, many Greeks have remained optimistic, The Christian Science Monitor reports.

Even as shuttered storefronts and lengthy ATM queues offer not-so-subtle reminder of the country's economic crisis, most Greeks remain convinced that all will work out in the end. The country may be on the edge of the precipice, they say, but Greece will ultimately seal a deal and retain its place in the eurozone. 

Why is that disconnect so gaping? … [P]art of the disconnect is due to different interpretation of events on the ground. Across the continent, the decision of Greek Prime Minister Alexis Tsipras to scrap negotiations, default on a loan, and hold a referendum on the terms of a bailout agreement, was seen as at best a dangerous distraction from bailout negotiations. And at worst, particularly in Germany, it was seen as out and out sabotage….

But the Greek faith that an agreement will be reached also owes much to recent patterns – wherein the “last chance” for European unity is always salvaged at the final moment.

Greeks are not oblivious to the fact that the creditors, at least publicly, don’t appear to be giving ground and that financial markets aren’t panicking (which would add pressure on creditors to cut a deal). But in the end many believe Greece will get a new bailout because, otherwise, the political costs for Europe are too high.

Still, there’s little time to spare, reports the BBC, given the dire situation of Greek banks that have been largely closed because of a lack of euros and great uncertainty over continued support from Europe's central bank. 

“If a way isn't found to allow the banks to reopen within days - and the ECB simply maintaining Emergency Liquidity Assistance won't come anywhere near to achieving that - the Greek economy will implode so that any bailout deal agreed this weekend will become irrelevant in weeks," writes the BBC's economics editor, Robert Peston. 

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In Greece, opposition party leaders predict a “large majority” of legislators will sign off on the government’s proposal in today’s vote, The Associated Press reports.

Rallies for and against the bailout are planned across Athens on Friday.