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Tags: greece | eu | euro | aid | creditors

Greece to Hear Creditors' Terms for Further Aid

Wednesday, 03 June 2015 06:41 AM EDT

Greek Prime Minister Alexis Tsipras will be told the details of a final proposal from creditors to break a stalemate over a financial lifeline as his country runs out of options to avert a default.

After European leaders and the head of the International Monetary Fund huddled late into the night in Berlin on Monday, creditors agreed on a new document designed to avert a default.

Tsipras, who drafted his own plan and said it was the only one on the table, is slated to meet European Commission President Jean-Claude Juncker in Brussels on Wednesday.

Four months of sparring and missed deadlines have given way to a greater urgency to decide the fate of Greece, which has about 310 billion euros ($346 billion) of debt outstanding.

While stopping short of an ultimatum, the latest twists put the onus on Tsipras's anti-austerity government to shelve some election promises or jeopardize the country’s euro status.

"The need for a deal is so big, after such a prolonged liquidity crunch, that the relief for the wider public will eventually trump the cost of compromise," said George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business.

The euro was little changed at 9:23 a.m. London time after rallying on Tuesday on optimism about a Greek deal, gaining 2 percent against the dollar. Greek bonds extended their advance on Wednesday, with the yield on the two-year security falling 118 basis points to 22.8 percent.

Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area group of his counterparts, meanwhile said an accord is still far off. German officials, who spoke on condition of anonymity, said their government was skeptical that a deal can be struck before the Group of Seven summit in Bavaria on June 7.

The Greek proposal, which was submitted Tuesday, wasn’t seen as being sufficient or credible, according to one creditor official involved in the talks. The proposal from the creditors will focus on the policies needed to unlock aid and not debt relief at this stage, the person said, speaking on the condition of anonymity.

"As long as it doesn’t meet economic conditions, we can’t come to an agreement," Dijsselbloem told RTL television. "There is a misunderstanding that we should meet halfway."

The deputy parliamentary leader of German Chancellor Angela Merkel’s party, Ralph Brinkhaus, described the negotiating situation as "very confused."

The Monday night meeting at the German Chancellery involved Merkel, IMF chief Christine Lagarde, European Central Bank President Mario Draghi, French President Francois Hollande and Juncker of the European Commission.

The goal was to hammer out an offer from creditor institutions that Greece could consider in coming days, according to people familiar with the plan. Tsipras rejected the idea that Greece would be dictated to.

"Greece is the one that submits the plan," Tsipras told reporters on Tuesday.

He then issued a statement later in the day. "The past five years of recession have been devastating for the lower and middle layers of our society. Therefore, we must move forward without the mistakes of the past. This is our main, non-negotiable position," he said.

Tsipras travels to Brussels to communicate the Greek proposal, a government official said in an email to reporters. The visit is on the invitation of Juncker, the official said, asking not to be named in line with policy.

The country submitted a 47-page proposal that includes projections of a primary budget surplus of 0.8 percent of gross domestic product this year, down from a target of 1.5 percent in April, state-run Athens News Agency reported. It includes a commitment to a surplus of 1.5 percent in 2016, as well as introduction of three different sales-tax rates, ANA said.

Greece has said it can make a debt repayment to the IMF on Friday, though it’s the smallest of four totaling almost 1.6 billion euros this month.

Also in the mix is the expiration of a euro-region bailout at the end of June.

Greece is seeking to access about 7 billion euros from that existing bailout before the issue of another rescue package looms large. Sticking points have included budget measures, pension reforms and changes to Greece's labor laws, with Tsipras's Syriza party talking about red lines.

The latest correspondence is a "face-saving move" unlikely to cut much ice with the creditors, Wolfango Piccoli, managing director of Teneo Intelligence, said in a report. Their insistence on pension and labor market changes also might make it tougher for Tsipras to keep his parliamentary majority and lead to more drastic action as deposits leave banks.

"This would in turn increase the odds of a public referendum or early elections, which would also raise the chances of capital controls being imposed," he said. 

© Copyright 2023 Bloomberg News. All rights reserved.

Greek Prime Minister Alexis Tsipras will be told the details of a final proposal from creditors to break a stalemate over a financial lifeline as his country runs out of options to avert a default.
greece, eu, euro, aid, creditors
Wednesday, 03 June 2015 06:41 AM
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