Greece's Main Creditors Said to Be Unwilling to Allow Euro Exit

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Yanis Varoufakis, Greece's finance minister, speaks during a panel discussion at the Brookings Institution on the sidelines of the International Monetary Fund (IMF) and World Bank Group Spring Meetings in Washington, D.C., on April16.

Yanis Varoufakis, Greece's finance minister, speaks during a panel discussion at the Brookings Institution on the sidelines of the International Monetary Fund (IMF) and World Bank Group Spring Meetings in Washington, D.C., on April16.

Photographer: Andrew Harrer/Bloomberg

Greece’s major creditors are not ready to let the country drop out of the euro as long as Prime Minister Alexis Tsipras shows willingness to meet at least some key demands, according to two people familiar with the discussions.

Chancellor Angela Merkel will go a long way to prevent a Greek exit from the single currency, though only so far, one of the people said. Every possibility is being considered in Berlin to pull Greece back from the brink and keep it in the 19-nation euro, the person said.

For all the foot-dragging in Athens, some creditors are willing to show Greece more flexibility in negotiations over its finances to prevent a euro exit, the second person said. The red line is that the Syriza-led government shows readiness to commit to at least some economic reform measures, said both people, who asked not to be named discussing strategy.

“Our view is that Greece is not going to exit the euro,” Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management in London, said in a Bloomberg Television interview on Friday. While both sides have “very entrenched positions” in the negotiations, “if you look at the way the euro-zone crisis has developed, in every case what you’ve seen is in return for firm action you get concessions.”

Escalating Rhetoric

The brinkmanship has sent Greek government bonds heading toward their worst week since Tsipras’s election in January at the head of an anti-austerity coalition. While the public rhetoric has escalated amid a standoff over releasing the last tranche of aid, creditors are willing to cut Greece some slack, the second person said.

Euro-area finance ministers are next due to discuss progress on Greece at their meeting on April 24 in the Latvian capital, Riga. Greece’s government remains confident an interim agreement with its creditors allowing disbursement of bailout funds can be reached by the end of April, a Greek official told reporters in Athens on Friday.

“We’re of the view that Greece will hold to the commitments it made to the institutions,” Georg Streiter, Merkel’s deputy spokesman, said when asked about the chancellor’s stance.

A deal won’t be ready by April 24 and could come together in the following weeks, Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in Washington. “I don’t believe in this game-of-chicken rubbish,” Dijsselbloem said. “We don’t know what the risks are.”

Russian pipeline deal

Tsipras met with Russian President Vladimir Putin in Moscow earlier this month. The two leaders discussed the proposed Turkish Stream pipeline project that would transport Russian gas to Europe, leading to speculation that Greece will receive an advance for transit fees.

The payment would be from 3 billion euros ($3.2 billion) to 5 billion euros, Germany’s Spiegel reported on April 17. Russia hasn’t agreed to such an advance, Interfax reported Saturday, citing Dmitry Peskov, President Putin’s spokesman. Germany wouldn’t object to Greece receiving aid from Russia in return for a pipeline deal, Finance Minister Wolfgang Schaeuble said on German television.

Stalled Bailout

International creditors won’t cut Greece loose if the country falls short of its stalled bailout review commitments, even considerably short, said the second person. They will only contemplate an exit if Tsipras’s government does nothing to comply or backtracks on reforms already implemented as part of the country’s 240 billion-euro ($259 billion) bailout, one of the people said.

Officials gathered for the International Monetary Fund’s spring meetings urged Greece and its European creditors to find a compromise. U.S. Treasury Secretary Jacob J. Lew told Dijsselbloem that time is of the essence to reach a deal, while U.K. Chancellor of the Exchequer George Osborne said the mood is “noticeably more gloomy” than it was in October.

“The situation in Greece is the one at the moment that’s the most worrying for the world economy,” Osborne told reporters. “A misstep could easily return the world economy to the situation we were in 3 or 4 years ago”

Broadening the tax base and improving tax collection, reform of the pension system and the deregulation of goods and labor markets to spur competition are among the recommendations for the Greek government.

‘Various Ways’

“Clearly, the new government has been elected with a strong public mandate to change the program,” Poul Thomsen, director of the IMF’s European department, said of Greece at a press conference in Washington on Friday. “As always, we’ll be flexible. We recognize there are always various ways to achieve a program’s objectives.”

In the event of a missed payment, there is no specific plan B to keep Greece in the currency area because the consequences of a so-called Grexit scenario are extremely hard to predict, according to the first person.

Germany’s Schaeuble declined to comment in Washington on Friday when asked whether European partners were preparing some kind of safety net to prevent a euro exit in case of a Greek default. Thomsen said it was “speculative to discuss the implications” of a Greek euro exit, a scenario the fund does not expect to happen.

If Greece does run up against a payment it can’t make, one option might be to issue IOUs, which are written promises to make good later, according two different people familiar with the negotiations. This would be a last resort action -- there are no preparations to issue such notes, the people said, without commenting on what obligations they might be used for.

“Nobody’s advocating for a Grexit, nobody is preparing a Grexit,” European Economic Affairs Commissioner Pierre Moscovici said in an interview in Washington. “But everybody is telling the Greeks now it’s time to deliver.”

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