Theophilos Argitis & Marcus Bensasson: Greek PM Tsipras seeks to stave off defections over EU aid plan

Tsipras is seeking to assuage his party's left flank by focusing revised austerity plan more on tax increases for firms and high-income individuals, instead of spending cuts

Greek Prime Minister Alexis Tsipras turned Tuesday to shoring up support at home for his plan to end a five-month stand-off with creditors that has brought his country to the brink of default.

Only hours after an emergency summit of euro leaders to discuss the proposals, Tsipras's government began the delicate task of ensuring his own government, made up of a motley coalition that ranges from Maoists to Social Democrats, will back the possible deal.

Tsipras is seeking to assuage the left flank of his party - some of whom want Greece to default on its debt altogether - by focusing the revised austerity plan more on tax increases for companies and high-income individuals, instead of spending cuts. The Left Platform, which holds about 40 seats in parliament and is composed of former communists and other hardliners closely aligned with labour unions, could defeat the government if its members vote against the plan.

"It will remain a major challenge for the Greek prime minister to successfully pass a potential agreement through parliament," George Saravelos, an analyst at Deutsche Bank AG wrote in a note to clients. "How the political process plays out largely depends on the number of parliament members the current government loses."

The proposals include steps to eliminate early retirement options, hike the sales tax, increase taxes that middle- and high-income earners pay and introduce a new levy for companies with annual net income of more than euro 500,000 ($568,000).

Markets gain
The possible deal got a resounding endorsement from Greece's markets with government bonds and stocks rallying for the second day. The yield on the two-year bond fell 300 basis points to 21.3 per cent at 12:35 pm in Athens. The Athens Stock Exchange Index was trading 4.1 per cent higher, after surging 9 per cent on Monday.

European leaders said Tsipras is finally getting serious after a five-month stand-off during which he was criticised for lacking good faith in talks. At Monday's meeting, they agreed to step up the pace of negotiations to secure a breakthrough that leaders can sign off at the end of the week.

The debate will shift back to Brussels on Wednesday when euro-area finance ministers meet to prepare the ground for a second, scheduled summit of European Union leaders that begins the following day.

The package of proposals represents "a certain step forward, but it was also said very clearly that we're not yet where we need to be," German Chancellor Angela Merkel told reporters in Brussels. "Hours of the most intensive deliberations lie ahead of us."

Capitulation
While the government's plan still falls short of creditors' demands, some Syriza lawmakers already described it as a capitulation.

Tsipras "has to explain to the people why we failed in a negotiation and arrived at this result," deputy parliament speaker and Syriza lawmaker Alexios Mitropoulos said Tuesday in a televised interview on Mega. "After five months of negotiations, I consider that, at the very least, the negotiation didn't succeed."

His remarks illustrate the kind of internal opposition Tsipras will have to overcome to secure backing for an agreement that runs against his party's pledge to end austerity.

"Every lawmaker has a personal responsibility, to recognise and understand not just the urgency of the moment, but the urgency of the whole project," Gabriel Sakellaridis, Tsipras's spokesman, said in an interview with Mega TV. In a public relations blitz, Sakellaridis gave at least three television interviews in Athens Tuesday morning.

Possible defections
Any substantial defections requiring the support of major opposition party New Democracy would open up the possibility of broader changes to the government or a referendum, said Saravelos, who calculates that between 10 and 40 Syriza lawmakers could dissent based on local media reports.

Germany has insisted Greek lawmakers pass economic policy changes first before its lawmakers vote on any revised aid deal. While the agreement could get parliamentary approval with the help of votes from the opposition, the government signalled on Tuesday that without enough support from its own ranks, it could lose the ability to stay in power.

"If it doesn't have the parliamentary majority with it, then it can't remain a government," Sakellaridis said.

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