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Protests rage in Greece as it offers lenders more cuts

Chaos in Greece over debt crisis

Protests took place in the Greek capital of Athens and the northern city of Thessaloniki at the weekend as the government passed reforms that it hopes will persuade lenders to release more financial aid.

In the early hours of Monday morning, the Greek parliament approved a controversial package of pension and income tax reforms in order to meet fiscal targets agreed with lenders in return for a third bailout of 86 billion euros ($98.1 billion). Ahead of the vote, opposition politicians criticized the leftist-led government headed by Prime Minister Alexis Tsipras, with several warning that the measures will lead Greece deeper into recession.

The measures are meant to ensure that Greece can meet an agreed 3.5 percent budget surplus target before interest payments in 2018, helping it to regain bond market access and render its debt load sustainable, Reuters reported on Sunday.

Riot policemen are seen through smoke, after minor scale clashes during a protest in Athens on May 8, 2016.
Kostas Pikoulas/Pacific Press/LightRocket via Getty Images

Thousands of anti-austerity protestors gathered outside the Greek parliament on Sunday with some clashing with police who deployed tear gas when Molotov cocktails and stones were thrown at the parliament building and officers. The protests came amid a three-day general strike against the cuts which brought public transport to a standstill and shut down media outlets.

Greek officials hope that by passing the measures, the bodies overseeing the country's third aid program – the European Commission, the International Monetary Fund (IMF) and the European Central Bank, along with the Eurogroup of euro zone finance ministers – will be persuaded to unlock another tranche of aid to Greece.

The latest reaction of the so-called "troika" of lenders should be seen on Monday when the Eurogroup meets at 2:00 p.m. London time to discuss Greece's progress on reforms and fiscal targets and the latest vote in parliament.

Greek Prime Minister Alexis Tsipras
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Talks between Greece and its lenders stalled in recent weeks leaving a review of Greece's progress in limbo. Greece hopes that by passing the measures on Monday, the review can be concluded imminently and more money released.

The Greek parliament move has not removed every obstacle, however, with the thorny issue of debt relief and contingency plans causing tensions both with Greece and between its lenders that are still to be resolved.

The IMF insists that debt relief is needed for Greece while Germany is opposed to such a move. What they agree on, however, is that Greece should pass extra legislation for more spending cuts in the event that it misses its fiscal targets. But Athens has said that it cannot legislate for future cuts and has suggested that it could propose cuts that would be triggered if it looks likely to miss targets.

Analysts said the parliament vote was a step in the right direction but was unlikely to prompt significant concessions from lenders.

"As always, these talks are not straightforward but hopefully we will see some progress today, particularly on the debt relief measures which have proven to be a very controversial topic among the countries creditors," Craig Erlam, senior market analyst at OANDA, said in a note on Monday.

Jeroen Dijsselbloem with Christine Lagarde
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Mujtaba Raman, practice head of Europe from Eurasia Group, said in note ahead of the vote that whatever the outcome, the vote was "unlikely to result in substantial concessions from the Germans or the IMF on Monday," and that the measures still fell short of lenders' demands.

"The creditor's impasse is key. The IMF's intervention – that it believes Greece's primary surplus is unrealistic, will not receive any support from the Eurogroup. That is, while there may be a willingness to lower the 3.5 percent (budget surplus) target after 2018, alongside concomitant debt relief, doing so prior to 2018 will be too politically toxic for the Eurogroup," Raman said on Friday.

"Creditors on each side of this debate have now staked too much on the 3.5 percent target, and what Greece needs to do to achieve it. At stake is more than Greece, but the reputation of economic competence in Brussels versus Washington (where the IMF is based)."

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