Greece Targets May Deal as Breakthrough Remains Elusive

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ECB Decides on Greek Emergency Funding This Week

Greece is still far from an agreement with its international creditors as Prime Minister Alexis Tsipras tries to persuade officials to ease the flow of liquidity to the country.

Three days before the European Central Bank’s next decision on emergency aid, gaps remain on issues ranging from fiscal forecasts to labor and pension reforms, three people familiar with the talks said. Still, progress has been made in an improved atmosphere and Greece should have the cash to make a 200-million-euro ($223 million) payment to the International Monetary Fund this week, officials said.

“We believe our red lines are for the benefit of the economy and society,” Greek government spokesman Gabriel Sakellaridis told reporters in Athens today. Progress in talks should be accompanied by easier liquidity terms as no reforms can be done under a cash crunch, he said.

The fiscal noose is tightening on Greece after weeks of brinkmanship and Prime Minister Alexis Tsipras needs to show European officials that he’s willing to find a compromise. Failure to do so could prompt the ECB to raise the haircut it demands on Greek collateral as soon as May 6, a decision which would risk pushing the country further toward financial chaos and capital controls.

A Greek official earlier said the government is targeting a successful conclusion of this stage of talks by Wednesday, which the country hopes will be enough for the ECB to relax, rather than tighten, liquidity conditions.

Beyond that, Greece wants to reach a broader agreement with creditors this month, Sakellaridis said. International officials stressed there’s a long way to go, despite the recent progress. All the people involved spoke on condition of anonymity as the talks are confidential. Negotiations will resume at 1 p.m. in Brussels.

Funding Restrictions

Greek government bonds were mixed Monday, with the yield on the two-year bond falling 17 basis points to 19.6 percent, while the yield on 10-year bonds rose 11 basis points to 10.57 percent. The Athens Stock Exchange index was trading 0.7% lower.

Investor 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 ECB’s stance will depend on the progress achieved this week, one of the people said, adding that restrictions on Greek banks can only be eased once it’s absolutely clear that bailout funding will resume.

Greece is also pledging to meet all its IMF obligations this month, which includes a 770 million-euro payment on May 12.

“‘We have proved that we aim to meet all of our debt service obligations on time,’’ Sakellaridis said. ‘‘There’s a matter of responsibility here on the other side.’’

A final agreement may complicated by signs of dissent within Tsipras’s government as Finance Minister Yanis Varoufakis and others stress their opposition to pension cuts or a sales tax increase.

‘‘We will not implement any measures which would lead to pension cuts this year,’’ Skourletis said.

He also said the government will abolish this year a controversial real estate tax and replace it with a different property tax.

‘‘We continue to see a 70 percent probability that, possibly with quite some political noise in Athens in the meantime, Greece will strike a deal in the end and stay in the euro,’’ said Holger Schmieding, chief economist at Berenberg Bank in London. At the same time, a deal in the next few days is unlikely, he said.

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