Greece, Euro-Area Partners Target Deal by Sunday

Alexis Tsipras
Alexis Tsipras, Greece's prime minister, arrives for a cabinet meeting at the parliament in Athens on April 30, 2015. Photographer: Kostas Tsironis/Bloomberg

Greek Prime Minister Alexis Tsipras told his cabinet on Thursday that he’s confident a deal to unlock bailout aid is close, even as his government sent conflicting signals on its willingness to agree on long-stalled reforms.

Tsipras addressed his ministers as Greece and its euro-area partners stepped up talks in a bid to reach a preliminary deal by May 3, ahead of looming debt payments in early May, three people with knowledge of the talks said earlier. The aim would be for finance ministers to sign off on the accord by their next scheduled meeting on May 11, the officials said, asking not to be named because the talks are private.

Greece may ask for an extraordinary meeting before May 11, if there is progress in the talks, Greek government spokesman Gabriel Sakellaridis told reporters on Thursday.

“I’m confident that there’s a common will and that in particular the will of the Greek government is indeed to find a solution,” French Economy Minister Emmanuel Macron told reporters in Rome.

A key factor in a potential breakthrough may be Tsipras’s decision to intervene and play a major role in the negotiations to help the process along. That gave the signal that his government may at last be willing to do what’s needed to unlock the stalled bailout.

Hopes for a deal propelled Greek government bonds higher on Thursday with the yield on the 10-year government bond falling 95 basis points to 10.47 percent. The yield on Greek notes due in 2017 fell 273 basis points to 19.45 percent. Greek bonds have delivered a 13.2 percent return in the past week, making them the best performing of 34 sovereign securities tracked by Bloomberg’s World Bond Indexes. The Athens Stock Exchange index also rallied in late trading to close 3.1% higher.

Red Lines

One European Union official cautioned that at the moment getting a technical deal by Sunday looked optimistic. Hard and long negotiations will take place over the coming days, with more talks planned for next week. Even so, reaching a comprehensive agreement by May 11 remains unlikely, the official said.

An agreement could still stumble at opposition within Tsipras’s government. In a sign of the obstacles yet to overcome for a deal, Tsipras told his ministers that any agreement would be in line with the popular mandate as expressed by the government’s “red lines” in the talks, according to Sakellaridis. The remark echoed a statement by Greece’s Finance Ministry on Wednesday that the government “retains red lines” in the negotiations, which include a sales tax on islands, pension and labor market reforms and asset sales.

Finance Minister Yanis Varoufakis on Thursday said Greece wouldn’t discuss pension cuts or the sales tax increase in the current talks, with any pension reform being part of a broader agreement in June. He expressed hope that Greece would be able to regain market access after June.

“We hope that negotiations will result in a normalization of the situation, so that we can enter a recovery period after June, regain market access, sell bonds, in the framework of sustainable debt,” Varoufakis told lawmakers in Athens.

Third Bailout

Creditors have insisted that an agreement be reached on the full package of measures and once that’s done, Greece should be prepared to initiate talks on a third bailout after the end of June when the current program expires, one of the people familiar with the matter said.

Varoufakis was told by his counterparts last week that time was running out to fulfill promises to reform his economy in return for aid payments. Tsipras has since curtailed Varoufakis’s role in day-to-day negotiations, reshuffling his staff handling the talks.

With Greece running out of time to reach a deal ahead of debt payments over the next two weeks, Moody’s Investors Service Wednesday downgraded ratings on the country’s government bonds further into junk while keeping a negative outlook. Moody’s lowered ratings on bank deposit ceilings even further below the bond rating, citing heightened risk of a deposit freeze if outflows continued and slashed its economic growth forecast for Greece to 0.5 percent from 1.2 percent.

Reform Bill

The new negotiating team, which includes Deputy Foreign Minister Euclid Tsakalotos, is preparing a bill that may include changes to the country’s taxation system and public administration. The cabinet will only discuss the draft bill if its approval would pave the way for access to liquidity.

Tsipras said earlier this week that he may need a referendum to garner public support for a deal that would go against the government’s campaign pledges. Yet, a poll conducted after his remarks and broadcast on Mega TV on Wednesday showed that sixty-two percent of Greeks oppose a referendum and 78 percent want the government to reach a deal with its creditors.

A referendum could backfire, Austrian Finance Minister Hans Joerg Schelling said in an interview in Vienna Wednesday.

“I see it like this: the government should govern,” he said. “If it were to go in the wrong direction, then the situation will be even more difficult.”

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