By Marcus Walker and Nektaria Stamouli
ATHENS -- Greece refused to back down in its rapidly escalating conflict with creditors, as lawmakers on Thursday passed measures to loosen the purse strings in a move that has angered Germany.
The fiscal largess, including a Christmas bonus for 1.6 million low-income pensioners and the suspension of a sales-tax increase on Aegean islands that have received refugees, led the eurozone to freeze debt-relief measures for Greece on Wednesday. Eurozone officials have criticized Athens for breaking promises to consult creditors before making any fiscal moves that could affect Greece's bailout goals.
Athens says the bailout allows it to raise spending if it outperforms its budget targets -- which it says it is on track to do.
A war of words this week between Greece, its European creditors and the International Monetary Fund has exposed the deadlock in talks over Greek austerity and raised the risk of another breakdown in the country's ill-fated bailout. Greek Prime Minister Alexis Tsipras has to meet strict targets agreed to with the country's creditors amid a deep slump in popularity in the recession-battered country.
Mr. Tsipras, after seeing his hopes of a compromise fade this month, is considering the option of snap elections, Greek officials say. He hasn't made a decision and is expected to review the state of talks in January, the officials say. If Mr. Tsipras calls elections, the likely outcome would be the end of the left-wing Syriza party's turbulent two years in government.
Any successor government would also have difficulty meeting the IMF's tough conditions. The IMF on Monday made public its demand for Athensto legislate several years of austerity measures upfront -- a position supported by German officials who are critical of Greece's record at implementing economic overhauls.
Germany wants the IMF to rejoin the Greek bailout as a lender to enforce overhauls strictly. The IMF hasn't lent Greece money since 2014, citing both a lack of credible policy plans and the unsustainability of Greece's mountain of debt.
The IMF argues that Greece should be given easier fiscal goals, but that more austerity is needed if Europe insists on targeting a Greek budget surplus, excluding interest, of 3.5% of gross domestic product. The IMF's tough fiscal assessment, and Germany's reluctance to talk about substantial debt relief, has left Mr. Tsipras facing an unpalatable prospect: all stick, no carrot.
Mr. Tsipras is due to meet German Chancellor Angela Merkel in Berlin on Friday, where Greek officials say he will urge her to understand the political limits to the extra fiscal pain he can inflict on a Greek society worn out by years of deep retrenchment.
The chancellor, however, has long avoided getting drawn into the substance of Greece's bailout terms, preferring to outsource such negotiations to the IMF and European Union institutions.
The Greek debt crisis has been relatively quiescent since the drama of summer 2015, when Greece nearly tumbled out of the euro after Syriza confronted the German-led creditors. But the risk for another collision returned this month after Athens failed to gain hoped-for concessions from eurozone finance ministers on Dec. 5.
Instead of a compromise on Greece's budget measures that would unlock fresh financing and debt discussions, the meeting showed the depth of differences between Athens and its lenders, especially the IMF. Finance chiefs approved some debt-relief measures, but the IMF was unconvinced by Greece's fiscal and labor-marketpolicies.
Two days later, Syriza's leadership committee decided on the fiscal gifts to pensioners and Aegean islanders. The step was widely seen as currying favor with key voter groups ahead of possible elections in 2017.
The popular pre-Christmas gifts succeeded in cornering Greece's conservative opposition, which has stumbled over whether to back them and in the end abstained from voting. But the moves backfired with the eurozone. It froze the debt-relief measures agreed to on Dec. 5 after Germany complained.
On Tuesday, Syriza angrily hit out at the IMF's demands for extra belt-tightening. Mr. Tsipras, without expressly naming the fund, denounced "technocrats -- I'd call them fools" whose fiscal forecasts had often been wrong.
Brussels-based European institutions, such as the European Commission, also took issue with the Washington-based fund. But in Germany, the eurozone's dominant power, policy makers had no problemwith the IMF's demands toward Greece, and reserved their anger for Mr. Tsipras.
Later on Thursday, the institutions monitoring the bailout said Greece's measures raise serious concerns, according to a European Central Bank spokesman, but wouldn't undermine bailout targets so long as they are temporary. Eurozone governments will decide how to proceed, the spokesman said.
Write to Marcus Walker at email@example.com and Nektaria Stamouli at firstname.lastname@example.org
(END) Dow Jones Newswires
December 15, 2016 13:27 ET (18:27 GMT)
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