Euro Area Seeks Greece Roadmap to May Agreement

Greece's Finance Minister Yanis Varoufakis
Yanis Varoufakis, Greece's Finance Minister, talks during the International Monetary Fund (IMF) and World Bank Group Spring Meetings in Washington, D.C. on April 18, 2015. Photographer: Andrew Harrer/Bloomberg

Greece needs to show euro-area nations what it could deliver by mid-May to unlock new aid payments and avoid default, the European commissioner in charge of euro matters said.

Finance ministry deputies will hold a conference call April 22, followed by the April 24 meeting of ministers from the currency bloc. The gathering in Riga, Latvia’s capital, is a chance to lay out a path to a May agreement, European Commission Vice President Valdis Dombrovskis said in an interview in Washington.

“The Riga Eurogroup meeting will be a chance to take stock of talks,” Dombrovskis said. “Hopefully Greece will be able to provide a reform package for the next meeting in May.”

Prime Minister Alexis Tsipras’s government and its international creditors remain at odds over how to move forward before Greece’s money runs out. After weekend technical talks in Brussels and other discussions at the International Monetary Fund’s spring meetings in Washington, euro-area officials were still waiting to see how Greece plans to show it will earn a cash infusion.

With the brinkmanship spanning two continents, Greek government bonds last week suffered their worst week since Tsipras was elected as prime minister in January on a platform promising to undo the tough bailout terms. European officials have begun planning how to manage a Greek default while continuing to seek a breakthrough.

Parliament’s Approval

In response to an initial outline of economic reform plans, the euro area in February extended Greece’s bailout framework until June. Dombrovskis said one way Tsipras can now show his government is serious about delivering on its pledges would be to win a signal of support from Greek lawmakers.

“It would be a welcome step if the agreed reform proposals are adopted by the Greek parliament without delay,” he said.

U.S. President Barack Obama and European Central Bank President Mario Draghi both called on the Greek government to do more to resolve the standoff amid depleting cash reserves. Greek officials, including Deputy Prime Minister Yannis Dragasakis, stood their ground on measures such as cutting wages and pensions, adding new taxes or selling state assets.

“We don’t budge from our red lines,” Dragasakis said in an interview published Sunday in the Athens-based To Vima newspaper.

Snap elections or a referendum are possible should negotiations with creditors stall, Dragasakis said. Last week, Greek Finance Minister Yanis Varoufakis said at the Brookings Institution that such steps were “absolutely not” part of the government’s bargaining strategy.

U.S. Pressure

Varoufakis told reporters in Washington that the U.S. has “an obligation to pressure both sides” that came through during the Washington meetings. He said Greece wants to avoid “an ineffective discussion about everything” to focus on a few specific reform measures.

“What we wanted eagerly is for the agreement to happen around specific reforming legislation,” Varoufakis said. “Unfortunately, from the side of the institutions there was refusal of this process; they wanted comprehensive review.”

A comprehensive deal that can win support from the European Commission and the IMF is necessary for finance ministers to sign off on any more aid, Dutch Finance Minister Jeroen Dijsselbloem told reporters. Dijsselbloem, who leads the euro-area finance ministers’ group, said he’s hoping to step back from a “game of chicken,” in which Greece and hardline euro-area nations refuse to move in hopes of winning last-minute concessions from the other side.

Debt Sustainability

Greece’s long-term debt sustainability isn’t front and center in the current talks. Dijsselbloem said the euro area will revisit the issue once the IMF and European Commission have approved Greece’s strategy, and French Finance Minister Michel Sapin said policy measures are more important for now.

“The debt is not the issue today,” Sapin said. “Now it’s up to the Greek authorities to make precise propositions, that are technically detailed and credible.”

Euro-area officials at the IMF meeting said it’s not clear how long Greece has before it runs out of money. A default wouldn’t necessarily lead to an immediate Greek exit from the euro, three officials said. Instead, they said, it might trigger emergency measures like capital controls or a bank holiday, depending on which payments Greece missed and whether Greece would accept measures such as those used in Cyprus as a way to keep access to possible euro-area lifelines.

‘Uncharted Waters’

Political contagion -- the risk that other nations might be seen at risk of leaving the euro -- took center stage over financial market contagion, which officials such as the ECB’s Draghi said might be containable. Draghi said it’s very premature to speculate what “uncharted waters” the crisis might venture into if Greece might threaten to leave the euro.

Still, in terms of contagion, “we have enough instruments,” Draghi said Saturday. “Though they have been designed for other purposes, they would certainly be used at a crisis time if needed.”

Asked about a Greek default, Draghi said “I don’t want even to contemplate such an event for the reason that clearly the Greek leaders have repeatedly stated that they intend to honor all their obligations.”

For now, the ECB is helping Greece survive its liquidity pressures by providing Emergency Liquidity Assistance to the Greek banks. Such assistance can’t last indefinitely, ECB Governing Council member Christian Noyer told reporters, and Lithuanian central banker Vitas Vasiliauskas said in an interview that the central bank shouldn’t extend its assistance beyond the summer.

The ECB’s stance puts added pressure on Greece to unlock the rest of its existing bailout money and start work on a follow-on program, which could involve a third aid package and reprofiling some of Greece’s debt.

“Every day that passes a little bit of time is lost,” Sapin said. “If something damaging happens, it will be grave for Greece and the Greek people, not for the other countries in the euro zone.”

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