Negotiations between Greece and its lenders recommenced in Brussels yesterday under a new Greek negotiation team, with signs an interim deal could be struck as early as next week, amid concerns about Greece’s ability to pay €1 billion in debt repayments to the International Monetary Fund falling due within the next 12 days.
Economics professor Euclid Tsakalotos is leading negotiations, following the dismissal of finance minister Yanis Varoufakis from Greece's negotiating team earlier this week, with signs Greece could be prepared to make concessions on one of the main policy areas under discussion – pensions, labour market reforms and privatisations.
There were signals from officials Greece could be prepared to implement changes to the pension regime and introduce a new flat rate of VAT, though the finance ministry in Athens insisted it still had “red lines”. In return, the EU may compromise on Greece’s primary surplus.
A key demand of the Greek bailout programme was a primary surplus of 3 per cent of gross domestic product this year, but there are signals the euro group could accept a lower figure. French finance minister Michel Sapin indicated last week he may accept a smaller primary surplus from Greece.
Economic targets
France – and most recently Ireland – are some of the countries to have gained leeway from Brussels on debt and deficit targets under the Stability and Growth Pact, increasing the pressure on EU lenders to grant concessions to Greece on its own economic targets. Greek finance minister Yanis Varoufakis has consistently argued the primary surplus demanded by lenders is excessive.
While a €200 million interest payment is due to the IMF, the Washington-based fund confirmed yesterday the payment would now fall due on May 6th, because of the bank holiday weekend in Greece. A further repayment of €750 million is due on May 12th.
With negotiations set to continue over the weekend in Brussels, some sources suggested an interim agreement with Greece could be agreed as early as this Sunday, three days before the first IMF interest payment is due. Renewed optimism about a possible breakthrough follows months of stand-offs between Athens and its lenders on a new reform package.
"The negotiations are being held in a constructive spirit,'' a European Commission spokesman said yesterday in Brussels.
The Greek government is looking to unlock €7.2 billion of bailout funds due to the country under the terms of its outstanding bailout, though it must present reform measures in exchange. An end-of -April deadline, enshrined in the February eurogroup agreement agreed by Greece and its lenders, has effectively been missed, with focus now turning to May 11th.
Hopes for a deal propelled Greek government bonds higher with the yield on the 10-year bond falling 26 basis points to 11.16 per cent yesterday afternoon. The yield on bonds due in 2017 was also lower, falling 73 basis points to 21.45 per cent.
Support for euro
A new poll showed over three-quarters of Greeks felt Athens must strike a deal at any cost to stay in the euro. Greek prime minister
Alexis Tsipras
indicated a referendum could be held if the reform package demanded by lenders goes beyond his party’s mandate.
Mr Tsipras’s Syriza party swept to power three months ago, after the previous government called a snap election as it struggled to implement the tough fiscal reforms demanded under the Greek bailout. On Wednesday, Moody’s again cut Greece’s credit rating.
