Grim economic news piles pressure on Greece

 Swedish PM says 'Greek deal possible'
Swedish PM says 'Greek deal possible'

The grim threat of a new recession and plunging tax revenues are piling pressure on Greece's new anti-austerity government to strike a deal with its creditors early next week.

Eurozone finance ministers will meet again Monday for crunch talks on how to keep Greece solvent, and in the euro, after a first round of discussions ended in failure Wednesday night.

Europe insisted Greece honor its commitments under the existing bailout program, 30% of which the new left-wing government of Prime Minister Alexis Tsipras says is unacceptable.

Since then, two pieces of economic data have been published which may force Greece into a climbdown.

First, official data released on Thursday showed the government's tax revenues fell almost one billion euros below target in January. Many Greeks held off paying before last month's election, hoping the new government would scrap many unpopular taxes.

The 20% shortfall means Greece will have an even harder time paying its bills.

Second, GDP figures published Friday showed Greece's economy shrank in the fourth quarter of 2014 after growing for the first nine months of the year. Economists have blamed the political uncertainty ahead of the elections.

Tsipras has promised voters he would not ask for an extension to the current loan package. The 240 billion euros bailout kept Greece in the euro but forced it to adopt painful austerity measures.

There are signs that European pressure and harsh economic reality are beginning to tell. At least the rhetoric is being toned down, and there's a whiff of compromise in the air.

The Greek government promised to do "whatever we can" to get a deal next week, after Tsipras met fellow EU leaders at a summit in Brussels on Thursday.

Tsipras has also authorized Greek officials to prepare the ground for Monday's meeting by talking to officials from the European Central Bank, European Commission and IMF -- the so-called troika of creditors his government had said it would have nothing to do with.

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Before winning the election by a landslide, Tsipras' Syriza party promised to cut property taxes and reinstate the 12,000 euros tax-free allowance, which was previously slashed as part of the bailout conditions.

It also abandoned the plan to raise taxes on tourist businesses and halted several large-scale privatizations, effectively giving up billions in government revenues.

If Greece leaves the meeting on Monday without an agreement, its banks could be cut off from emergency central bank funds that are currently keeping them afloat. By the end of the month, the country would be on its own financially, and unable to borrow on international markets.

The country's biggest banks have been hit hard by solvency fears this year -- shares Piraeus (BPIRF) have lost 22.5% since the start of the year, while Alpha Bank (ALBKF) has seen a 14% decline.

Both were up strongly on Friday, as was the broader Athens market, on signs that a compromise might be possible.

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