Greece’s MPs are debating tough economic measures they must approve by the end of the day in order for a eurozone bailout deal to go ahead.
The possible €86bn bailout was agreed on Monday, though one of Greece’s creditors, the International Monetary Fund, says it does not go far enough.
The deal requires Greece to increase taxes and raise the retirement age.
Greek PM Alexis Tspiras said he does not believe in the deal, though he agreed to it.
In a TV address on Tuesday, Mr Tspiras called the proposals “irrational” but said he was willing to implement them to “avoid disaster for the country” and the collapse of the banks.
In order to receive €86bn (£61bn; $95bn) from the EU over three years, Greek MPs on Wednesday need to approve:
- Ratification of the eurozone summit statement
- VAT changes: Top rate of 23% to extend to processed food, restaurants, etc; 13% to cover fresh food, energy bills, water and hotel stays; 6% for medicines and books. VAT discount of 30% to be abolished on islands, but remotest islands to keep discount until next year
- Corporation tax raised from 26-29% for small companies
- Luxury tax for big cars, boats and swimming pools up from 10-13%; farmers’ tax up from 13-26%
- Early retirement to end (phased in by 2022); retirement age raised to 67
- Greek statistics authority Elstat to have full legal independence
The IMF report was written before the eurozone reached a deal with Greece in the early hours of Monday.
It was shared with eurozone leaders in advance, but made public only on Tuesday.
It predicts that, in two years’ time, Greek debt will reach close to 200% of GDP (national income) which could “only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far”.
It recommends a “very dramatic extension” on the maturity of Greece’s debts, “with grace periods of, say, 30 years on the entire stock of European debt”.
“Other options,” it says, “include explicit annual transfers to the Greek budget or deep upfront haircuts (debt write-offs)”.
Politics beats economics – by Chris Morris, BBC News, Brussels
The IMF report highlights a massive flaw in the deal hammered out so painfully between Greece and the rest of the eurozone: the numbers don’t add up.
It believes that without a restructuring of the Greek debt, it will keep on rising.
But the point about this deal is once again in the eurozone, it was a case of politics trumping economics.
The desire to keep the eurozone together was stronger (for now) than the economic forces threatening to pull it apart.
There was plenty of talk about debt restructuring during the negotiating process, but not on the scale that the IMF is suggesting.
Officially, there will be a discussion of restructuring only after a first review of the new bailout is successfully concluded.
That is several months down the line.
But, while the IMF report doesn’t comment directly on Monday’s deal (because the report had already been written by then), it certainly implies that the IMF may feel it is unable to take part in the new bailout programme for Greece.
And that would leave a large hole – both in terms of numbers and political credibility.
Germany, the largest contributor to Greek rescue funds, and a number of other eurozone countries have long resisted any talk of haircuts and debt relief.
Monday’s announcement was met with anger among many in Greece who called the deal a “humiliation”.
Despite this, Greece – whose economy has shrunk by 25% in the last five years – is expected to pass new legislation in parliament on Wednesday.
Three pro-European opposition parties have pledged to vote for the measures.
However, hardliners in Mr Tsipras’ own Syriza party are likely to rebel and the junior coalition party, the Independent Greeks, have offered only limited support for the reforms.
Vote risk for Syriza government
The Greek constitution states that a government must have a majority – 151 seats out of 300.
But if it loses a vote, the government can still function in a minority capacity as long as the opposition does not call a vote of confidence and as long as the numbers don’t fall below 121.
The number of anti-bailout MPs is known to be at least 30 within Syriza’s 162-seat coalition.
The question is whether there will be more than 41.
If the numbers go below 121, Alexis Tsipras’s government will be severely damaged and will likely look to opposition parties to join a national unity government.
As parliamentary committees considered the details of the laws, Deputy Finance Minister and Syriza member Nadia Valavani announced her resignation, saying: “I’m not going to vote for this amendment, and this means I cannot stay in the government.”
And tempers flared when former Finance Minister Yanis Varoufakis was heckled with shouts of “You got us here” while addressing one committee.
The jeers came when he said he doubted the deal could work, and compared it to the conditions imposed on Germany in the Treaty of Versailles after World War One.
Opponents of the deal took to the streets of Athens ahead of the vote, and unions and trade associations representing civil servants, municipal workers and pharmacy owners held strike action.
Greece faces an immediate cash crisis. Banks have been shut since 29 June.
Mr Tsipras has warned banks are unlikely to reopen until the bailout deal is ratified, and this could take another month.
The European Commission has formally proposed a short-term €7bn loan for Greece through the EU-wide European Financial Stability Mechanism (EFSM).
Use of the EFSM for eurozone rescues has been opposed by Britain and other countries which are not part of the euro but are European Union members.
But one British official in Brussels told the BBC the UK government had no objection in principle to the use of the EFSM – as long as British taxpayers’ money was ring-fenced from any liability.
Valdis Dombrovskis, a senior European Commission official, said it was working to protect non-euro states from any negative financial consequences should the loan not be repaid.