Prime Minister Alexis Tsipras has refused to back down over his plans to give poor Greek pensioners a pre-Christmas bonus rather than pay back the creditors more than the agreed amounts.
A government official said Mr Tsipras would ask parliament on Thursday to approve the payment, worth €617m in total.
The money for the bonuses will come from the better than expected primary surplus, which at the moment is said to be in excess of 7 billion euro – the result of vicious cuts and over taxation – against an agreed target of 3.5 billion, so that there is no straying from the creditors targets.
But eurozone lenders suspended their recently agreed short-term debt-relief plan for Greece.
German finance ministry said the lenders had not been asked to approve the bonuses plan. Similar statements followed from the ESM and Eurogroup president Dijsselbloem.
The European Stability Mechanism the body that helps eurozone governments in trouble, said it would now be scrutinising the proposed handout.
“Following recent proposals by the Greek government to spend additional fiscal resources for pensions and VAT, our governing bodies have put their decisions temporarily on hold,” a spokesman for the ESM said.
“Institutions are currently assessing the impact of Greek government decisions vis-a-vis the ESM programme commitments and targets.
“[We] will then analyse the institutions’ assessment and subsequently decide how to proceed,” he said.
A spokesman for Jeroen Dijsselbloem, the head of the Eurogroup said the Greek government’s action appeared “not to be in line with our agreements”.
There was “no unanimity now for implementing short-term debt measures”, the spokesman added.
The debt-relief deal between Greece and the ESM was agreed on 5 December and would reduce the loan burden on the country’s debts of more than €300bn by 20 bn in 2060 .
The Greek government, wrongly thinking that it is entitled to make its own decisions on welfare spending, when they do not breach the lenders agreement, announced its bonus for pensioners earning below €800 a month just three days later, but without asking permission from the eurozone representatives.
Pierre Moscovici, EU economic affairs commissioner appeared to be siding with Athens after the lenders put the deal on hold. He said:
“We (the Commission) think the decision taken on debt relief is robust, was taken on the basis of Greece’s compliance with the first review, and therefore there is no reason to question it.”
The one-off bonus to the poorest pensioners is thought to have a multiplier effect, that will benefit the economy 4 to 5 times more than the amount paid, as the low income beneficiaries are likely to spend most of their bonuses giving the local economy a welcome boost.
Mr Tsipras also postponed a rise in VAT for residents of Aegean islands to help relieve the economic pressure caused by an influx of migrants.
“This is a familiar refrain in the long-running story of the Greek bailout”, international media reported after the lender’s announcements were made, adding that “this time it is debt relief agreed by eurozone ministers rather than a loan payment that is being held up”.
However this should not alarm the Greek government too much, as the effects of the short term relief were not going to be felt before 2060.
The arrangement of 5 December included extending the maturity on certain loans to the Greek government and locking-in the interest rate on some of its debts in order to reduce the country’s repayment burden, but they did not alter the total amount owed.
The International Monetary Fund thinks the lender’s targets aren’t really attainable without further economic ‘reforms’ (spending cuts and new taxes), which in turn, would make the surplus targets even harder to achieve.
The particular issue is apparently whether the measures on pensions and VAT will lead to Greece missing its targets for the government finances, which as the data show it will not.
It is therefore more of an issue of political power games by Germany, a key player in the decision to suspend the recent agreement.
“If the rescue programme is going to be deemed a success, it is imperative that measures are not taken unilaterally,” said a spokesman for the German Finance Ministry.
In the early days of the first Syriza government, it was said that the lenders’ apparent aim was regime change in Greece and a humiliation of the left government to set an example to the rest of Europe. And in that they were successful, as they forced the Syriza government to a complete capitulation on all their pre election promises for a memorandum free future.
But it is hard to see what the lenders hope to achieve beyond that, knowing that the latest punitive action of stalling the evaluation of the programme and the debt relief talks are going to have a detrimental effect on the Greek economy, still suffering from six years of recession.
It is not a secret that a group of hardliners in Europe, led by Wolfgang Schaeuble who has an intense dislike for the left, would still prefer to deal with someone like the new leader of the opposition New Democracy, who the lenders see as more of a reformist in their own image. At the same time there a suspicion, encouraged by occasional leaks and off-the cuff comments from the German finance minister, that Herr Schaeuble and his band of followers would still prefer to see Greece out of the eurozone as they do not see the country fitting into the German vision of the Union, even if circumstances have restricted their freedom to express their views openly.
Perhaps regime change and Grexit are not yet entirely off the European agenda.