Eurozone expects to finalize bailout after Greek parliament approves draft

BRUSSELS -- Eurozone officials were optimistic of approving a draft bailout deal for Greece on Friday after the country's lawmakers cleared it in a vote that nevertheless saw the government suffer significant dissent.

The bailout is all that stands between Greece and a disorderly default on its debts -- as soon as next week -- that would force it out of Europe's joint currency. The package entails about 85 billion euros ($93 billion) in loans over three years in exchange for harsh spending cuts and tax hikes.

The Greek parliament passed the bill on the deal after a marathon debate and just in time for Finance Minister Euclid Tsakalotos to fly to Brussels to seek the seal of approval from his eurozone counterparts as well.

Germany, Greece's most influential creditor and harshest critic, was cautiously optimistic.

"I think that at the end of today we will have a result," German Finance Minister Wolfgang Schaeuble said as he arrived for the talks. "If we don't find a solution, we will have to do bridge financing," he said, referring to a short-term loan so Greece can make its next debt payment on Aug. 20.

Jeroen Djisselbloem, who chairs the eurozone finance gatherings, said that the meeting "won't be short," but that "hopefully at the end of the evening we'll have a positive outcome."

The bill passed through the Greek parliament thanks to support from opposition parties, with 222 votes in favour, 64 against, 11 abstentions and three absent in the 300-member parliament.

Although approved by a comfortable majority, the result was a blow to Prime Minister Alexis Tsipras, who saw more than 40 of his 149 radical left Syriza party lawmakers vote against him. He has come under intense criticism from party hardliners for capitulating to the creditors' demands for budget cuts -- austerity measures he had promised to oppose when he won elections in January.

The bill includes reforms increasing personal, company and shipping taxes, reducing some pensions, abolishing tax breaks for some groups considered vulnerable and implementing deep spending cuts, including to the armed forces.

The mounting discord within Syriza is threatening to split the party and could lead to early elections. The stock market in Athens slid on the news and was down 2.4 per cent in afternoon trading.

State television said Tsipras was expected to call a vote of confidence in his government, but that was not confirmed. Government spokeswoman Olga Gerovasili said any action would come after Aug. 20, when Greece has to make a large debt repayment to the European Central Bank.

Tsipras has maintained his public popularity in Greece despite his U-turn on austerity policies, and consistently leads opposition parties in opinion polls. An election would allow him to remove the hard line elements from his party, but it is not a risk-free option.

"An election in the next few months would create more political uncertainty, delay economic recovery and impede reform implementation and the possibility of opening talks on debt relief as desired by the (International Monetary Fund) as a condition of its involvement in funding the program," said Joan Hoey, analyst for Europe at the Economist Intelligence Unit.

"However, it appears to be unavoidable if Greece is to have a government capable of implementing the agreement."

The deal also needs approval from the parliaments of several other countries, including Germany's, before any funds can be disbursed. Some nations, such as Finland, have already given their approval.

Syriza dissenters angrily challenged the government during the all-night parliamentary session.

"I feel ashamed for you. We no longer have a democracy ... but a eurozone dictatorship," prominent party member and former energy minister Panagiotis Lafazanis said before the vote. Lafazanis signed a declaration with another 12 left-wing politicians Thursday saying they would start a new anti-austerity movement. He stopped short of quitting Syriza.

The terms of the new bailout were agreed earlier this week with creditor negotiators from the European Central Bank, European Commission and IMF.

"We took a painful decision of responsibility, and took a step back," Tsipras said in his defence of the bailout.

If the new deal clears the remaining hurdles, Greece would quickly get 13 billion euros in new loans, a Greek finance ministry official said.

Of that sum, 12.5 billion would be used to cover Greece's upcoming debt repayments and the remaining half a billion for covering arrears. Later, but relatively soon, another 10 billion would be disbursed, earmarked for the country's banks, which suffered a run and had to be shut for a month. An effort would be made to have a further "significant" sum disbursed to also cover state arrears.

The official, who spoke on condition of anonymity in line with government rules, said there were still differing views on how a new privatization fund would work, and that some eurozone states considered Greece's budget targets too low.

The IMF, meanwhile, still considers Greece's debt to be unsustainable and says the country needs debt relief of some sort. The fund has said it will decide on whether to participate in the new bailout once it has been set up and Greece's European partners have decided on how to ease its debt burden.

Many of Greece's euro partners have ruled out a cut to what the country owes them, preferring instead to consider lower interest rates and longer repayment dates on the bailout loans.

The issue will not be discussed, however, before a first positive review of the new deal is made in October.