Greece Offers Debt-Talks Compromise

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Merkel Remains Firm on Greece Bailout Terms

Greece offered compromises ahead of an emergency meeting with its official creditors tomorrow as German Chancellor Angela Merkel remained unyielding over terms of the country’s bailout conditions.

Greek Finance Minister Yanis Varoufakis told lawmakers on Monday that the government intends to neither tear up the existing bailout agreement, nor allow the budget to be derailed. He said Greece will implement about 70 percent of reforms already included in the current bailout accord.

“The Greek side entered the negotiations very powerfully and very soon realized that things are worse than they expected, as they faced a concrete wall,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “A U-turn began very quickly. Varoufakis slowly started pouring more water in his wine.”

Greek government bonds rose for the first time in five days on optimism there might be room to move toward an agreement that will help ensure the nation isn’t left short of funds. Any accord, however, would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its 240 billion-euro lifeline.

The yield on Greek 10-year bonds fell 50 basis points to 10.2 percent. The Athens Stock Exchange Index rose as much as 6.8 percent. It has dropped 3.8 percent since the anti-austerity Alexis Tsipras was elected to power on Jan. 25.

The European Commission denied reports it will present a compromise proposal at the meeting tomorrow, saying “very intense contacts are ongoing between” Commission President Jean-Claude Juncker, Prime Minister Tsipras and others, and that the plan being worked on is to keep Greece in the euro area. Expectations are “low” for a final pact this week, the commission said.

Merkel’s Stance

Greece sought to drum up support for a 10 billion-euro ($11.3 billion) bridge plan ahead of the euro-area finance ministers’ meeting in Brussels on Wednesday. The country is seeking to stave off a funding crunch, while also buying time to push creditors to ease some austerity demands.

Varoufakis’s proposal tomorrow will ask for an 8 billion-euro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek the disbursement of 1.9 billion euros of profits that euro area-central banks made on their Greek bonds holdings.

German political leaders have said they will not extend more assistance to Greece without strings attached. Merkel said in Washington on Monday that the existing aid programs are the basis for Greek talks.

“I’m waiting for Greece to come forward with a viable recommendation and then we’ll talk about it,” she said.

Lazard’s Advice

Any impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and puts Europe’s most-indebted state’s euro membership in danger.

Greece’s public debt currently stands at more than 320 billion euros, or about 175 percent of gross domestic product.

About 100 billion euros of that debt needs to be canceled for it to be manageable, Matthieu Pigasse, head of Lazard Financial Advisory, hired by the Greek government as adviser on issues related to public debt and fiscal management, said today in an interview on France Inter radio in Paris.

Such a reduction would bring the country’s ratio of debt to GDP to 120 percent in 2020 and would make Greece’s debt burden more “sustainable,” he said.

“Everyone knows, each European government knows, that the debt is today unsustainable or untenable,” he said.

Behind Rhetoric

Still, behind the public rhetoric, the Greek government has shifted to a more cooperative stance in recent conversations with the troika of the IMF, the European Central Bank and the Commission, according to an official representing the creditors.

Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Tsipras accepts he needs a new program, which will include monitoring, and commits not to reverse the most important overhauls of the bailout agreement.

The Greek government’s proposal for a bridge deal is aimed at allowing the country to break the impasse and negotiate a more permanent arrangement with its creditors by this summer.

Greece is pushing for a successor program to its current bailout, which will be focused on structural economic overhauls rather than fiscal measures.

The government said that reforms will be carried out in cooperation with the Organization for Economic Cooperation and Development, while it will not allow the budget to be derailed.

Confidence Vote

Greece’s new anti-bailout government, led by Tsipras, laid out a lengthy list of policy actions, including a gradual increase in the minimum wage and a boost to the threshold of tax-exempt income. The plan will be put to a confidence vote in Greece’s parliament today. The measures would breach the terms of the country’s emergency loans agreement with the euro area and the IMF.

Tsipras has said they are necessary to alleviate the “humanitarian crisis” in Greece after five years of belt tightening that left more than a quarter of the workforce without a job. A Feb. 6 poll for Skai Television showed that 72 percent of those surveyed support his negotiating tactics.

Last week Varoufakis told investors in London that the debt restructuring Athens is requesting will not include a writedown on the nominal value of the country’s debt.

Greece is also open to discussing a precautionary credit line backed by euro-area funds after the deal on the bridge program has been sealed, said the Greek government official who spoke on the condition of anonymity.

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