Greece Races to Bridge Gap With Creditors Before Debt Bill

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Dutch Finance Minister Jeroen Dijsselbloem
“They’re working hard now and that’s what we’ve gained,” Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in the Hague. Photographer: Jasper Juinen/Bloomberg

Greece and its international creditors remain apart on key elements of the country’s bailout agenda even as they work to bridge differences in a bid to avert a default as early as this month.

In discussions since Thursday, it wasn’t yet clear the two sides would make enough progress to clinch a deal in time for the planned May 11 meeting of euro-area finance ministers, some officials warned.

“They’re working hard now and that’s what we’ve gained,” Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in the Hague on Friday. “But in the end we only look at the results and we’re not that far yet.”

Greek Prime Minister Alexis Tsipras told his cabinet on Thursday he’s confident of closing a deal, even as his government sent conflicting signals on its willingness to agree on reforms required under the 240 billion-euro ($268 billion) bailout. While the government is working hard to get a deal as soon as possible, it will draw the line on matters such as labor market reforms and cuts to wages and pensions, government spokesman Gabriel Sakellaridis said on Saturday.

Faced with debt payments totaling about 1 billion euros to the International Monetary Fund on May 6 and May 12, Greece hopes there will be enough progress in the talks by next week to allow the European Central Bank to restore liquidity access to the country’s cash-strapped banks.

Shares Jumped

Optimism that a deal to unlock financial aid for Greece is close after months of talks put the country’s assets among the region’s best performers in April. The Athens Stock Exchange Index of shares jumped the most by the end of April since September 2012 from a two-year low on April 21. It ended up 6.1 percent in April, the biggest rally in western Europe. Bonds returned 13 percent, as securities across the region fell.

Greece and its creditors stepped up efforts to break the impasse with a target to reach a deal by Sunday, three people with knowledge of the talks said earlier this week.

“One thing from the history of the euro crisis that we know is that all of these deadlines can shift, but if there is an actual deadline they will make a decision beforehand,” Christian Schulz, an economist at Berenberg Bank, said in a Bloomberg TV interview on Friday. “They’re still miles apart on pretty much everything.”

Negotiating Team

Dijsselbloem said it was too early to say whether talks with Greece had reached a turning point. While there has been progress in terms of the process after Tsipras altered the negotiating team, pushing aside Finance Minister Yanis Varoufakis, there is still a long way to go on the substance, a person familiar with the matter said, asking not to be named because the talks are private.

The official said that the Greek government’s economic assumptions are optimistic, making it difficult to agree on the extent of fiscal adjustment measures the country must adopt to meet goals under its bailout.

Those assumptions for deficit, debt and revenue are based on a growth forecast of 1.4 percent for 2015. The Commission is expected to lower its current forecast of 2.5 percent to well below the government’s estimate when it issues its spring forecasts on May 5, the official said.

For more, read this QuickTake: Greece's Fiscal Odyssey

Stumbling Blocks

Even if an agreement between Greece and international creditors is reached soon, it would take weeks for the next aid tranche to be paid, the German newspaper Handelsblatt reported on Saturday, citing people close to the government.

Still, the government is prepared to streamline at least three different value added tax rates into one, and limit exemptions, Frankfurter Allgemeine Sonntagszeitung reported on Saturday, citing people close to negotiations. Varoufakis said on Thursday that Greece wouldn’t discuss the sales-tax increase or pension cuts as part of the current talks.

In another sign that Athens may be ready to ease its stance against certain reforms, it plans to invite investors to buy a stake in the country’s main port of Piraeus on May 6, the same day the ECB may discuss the collateral it accepts from Greek banks in return for emergency funding. Greece will proceed this year with the sale or leasing of stakes in several strategic assets, including Piraeus Port Authority SA and 14 regional airports, according to Greek officials with direct knowledge of the matter.

“These steps appear positive, but the real stumbling blocks such as labor market and pension reforms demanded by the creditors still need to be surmounted,” UBS analysts Ricardo Garcia-Schildknecht and Thomas Wacker, who see Greek default risk probability at 50-60 percent, wrote in a note to clients. “We therefore have difficulty seeing how the Eurogroup can unlock the bailout funding under these circumstances.”

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