Greece’s Governing Syriza Party Divided Over Debt Terms

Faction of Prime Minister Alexis Tsipras’s left-wing party says it favors default and a eurozone exit over swallowing measures creditors are demanding

The Wall Street Journal

By STELIOS BOURAS

Updated May 25, 2015 9:08 p.m. ET

ATHENS—As financial pressure mounts on Greece to sign a deal with its foreign lenders, Prime Minister Alexis Tsipras is facing what may be his biggest problem yet: the struggle within the ruling Syriza party over whether to swallow creditors’ tough terms or default.

Dissent is spreading within left-wing Syriza against the economic policies Greece is likely to have to enact in return for fresh bailout funding from other eurozone governments and the International Monetary Fund.

The Syriza-led coalition government holds only a thin majority of 12 seats in Greece’s 300-seat Parliament, so a rebellion against a deal could easily cost Mr. Tsipras his governing majority.

Greece’s lenders are particularly worried about vocal threats by Syriza’s Left Platform, a hard-line leftist faction within the party, to reject any deal that crosses ideological “red lines” by cutting pensions or workers’ rights.

Mr. Tsipras’s difficulty in selling a painful compromise to Syriza’s hard left, as well as to other parts of his ideologically diverse party, has become the largest obstacle to a deal. European officials and analysts—and privately even Greek government officials—say they don’t know whether the roughly 30 lawmakers who make up Left Platform will vote as defiantly as they talk if creditors’ terms are put before the Athens Parliament.

Greece needs to agree on a list of economic policies with lenders in time to avoid defaulting on a series of loan repayments to the IMF in mid-June.

Although the government probably has enough cash to repay a €300 million ($329 million) loan due June 5, it almost certainly can’t meet three further payments totaling about €1.25 billion on June 12, 16 and 19, European officials say.

Greece needs a deal as soon as possible so it can service its IMF debts, government spokesman Gabriel Sakellaridis told reporters on Monday. “To the extent that we are in a position to pay our obligations, we will pay our obligations,” he said, adding: “It’s the government’s responsibility to be in a position to pay its obligations.”

The European Central Bank has told eurozone governments it would allow Greek banks to buy more short-term Greek government debt if an economic-overhaul agreement between Athens and creditors is imminent. That would allow Greece to survive until July, when further debts fall due and fresh bailout loans will be needed.

Lenders, led by the IMF and Germany, are insisting that Greece enact further budget austerity, cut the cost of its pension system, step up privatizations and make corporate layoffs easier, among other measures. The creditors’ hard-line has exasperated Syriza leaders, who won election in January on a promise to end such painful retrenchment, which many Greeks believe have deepened rather than cured their country’s economic crisis in the past five years.

When Syriza’s Central Committee debated the state of debt negotiations this weekend, the Left Platform submitted a motion calling for the government to default on the IMF loans rather than compromise its principles. The proposal was narrowly rejected, with 95 people voting against and 75 in favor.

The Left Platform’s leader, Energy Minister Panagiotis Lafazanis, told the meeting default was preferable to surrender, even if it meant Greece tumbling out of the euro.

“Who says that an exit from the euro and a return to the national currency is a catastrophe?” Mr. Lafazanis said at the meeting.

The Central Committee agreed on a text saying any deal with creditors must involve no pension cuts, a small budget surplus before interest, increased public investment and a restructuring of Greece’s debt—terms that lenders are unlikely to accept. The text isn’t binding on Mr. Tsipras’s government but indicates how hard it will be to sell a deal to Syriza.

The weekend’s debate came after other recent challenges to Mr. Tsipras from Syriza’s hard-liners, including a call last week by five members of Syriza’s highest leadership body, the Politburo, to leave the euro rather than give in to creditors.

Many analysts say Mr. Lafazanis and the Left Platform might back down and follow Mr. Tsipras in the end, because strong party discipline is also part of the group’s ideology. Even hard-liners don’t want to be accused of bringing down a left-led government.

But the rest of Syriza’s diverse ranks, which range from center-left moderates to Maoists, also include potential rebels.

“The biggest threat may not end up being Mr. Lafazanis, but other parliamentary members who lack party discipline, who are newly elected and are completely unpredictable,” said Dimitris Keridis, an associate professor of international politics at Panteion University in Athens.

Parliamentarian Ioanna Gaitani, a self-described Trotskyite in the Left Platform, said Greece can survive a debt default and lenders aren’t respecting Syriza’s mandate.

“When faced with the pseudo-dilemma of ‘euro or national currency,’ the answer is a unilateral write-off of most of the debt, the taxation of large wealth, and the implementation of Syriza’s program,” she said. “For the Left, the needs of the people are above profits and debts.”

—Nektaria Stamouli contributed to this article.

Write to Stelios Bouras at stelios.bouras@wsj.com