• EU, IMF disagree on fiscal effort required by Greece
  • Meetings in Frankfurt, Brussels ended without consensus

Greece’s creditors hit a roadblock over the conditions for disbursing the next portion of emergency loans to Europe’s most indebted state, as Prime Minister Alexis Tsipras pointed the finger at the International Monetary Fund for yet another delay in the review of the country’s bailout.

The delay adds to Greece’s mounting troubles as Europe’s failure to contain the influx of refugees threatens to strand thousands of migrants in the nation, potentially causing a humanitarian crisis.

Euro-area finance ministry officials, the European Central Bank, the European Commission and the IMF couldn’t agree on Monday how Greece can reach a budget surplus before interest payments of 3.5 percent of gross domestic product in the medium term, according to three people with knowledge of the talks. The Washington-based fund had a bleaker outlook on Greece’s economy than its European counterparts and doubts Tsipras’s proposals for overhauling the pension system are sustainable, said the people, who requested anonymity because the meeting was private.

“The difference between the Europeans and the IMF largely comes from how much confidence each side has in the Greeks’ ability to raise, and save,” Eurasia Group analyst Mujtaba Rahman wrote in a note to clients on Monday. “Ultimately, we think the Greeks and Europeans are going to have to move closer to the IMF position.”

Return to Realism

In order to unlock more aid from an 86 billion-euro ($93 billion) bailout package forged in August, Greece and its creditors need to agree on spending, tax and pension reforms that would achieve the targeted budget surplus. A separate meeting between officials representing creditor institutions in Frankfurt on Sunday ended without consensus, according to another person familiar with the talks.

Greece and its creditors need a program of reforms and debt relief that adds up, IMF spokesman Andreas Adriano said in an e-mailed statement, when asked to comment.

Negotiations are deadlocked on three mutually incompatible red lines: Tsipras’s refusal to accept additional pension cuts; Europe’s refusal to deliver deeper debt relief to ease fiscal targets required to make the country’s public finances sustainable; and the demand by some euro-area states that the IMF contributes to the latest Greek bailout, according to an official involved in the aid review. A breakthrough in the talks would require one of those lines to be crossed, the official said.

Even as talks stalled among Greece’s creditors, Germany has indicated it’s willing to give Athens leeway in its overhaul of the pension system in an effort ease the disbursement of more aid, according to a person familiar with the German position. Germany would now be satisfied as long as pensions are rendered sustainable, rather than enforcing mandatory cuts, which it had previously sought, said the person, who asked not to be identified because the negotiations are private.

In an interview with Greece’s Star TV on Monday, Tsipras said that the IMF must return to realism, adding that creditors need to reach consensus among themselves on the bailout review. The heads of mission of creditor institutions will probably return to Athens after next week’s meeting of euro-area finance ministers in Brussels, Tsipras said.

Humanitarian Crisis

The meeting on Monday showed that there is distance between the positions of European creditors and Greece on the one hand, and the IMF on the other, Greek government spokeswoman Olga Gerovasili told reporters in Athens on Tuesday. The fund came under heavy pressure during the discussion to explain why it is straying from what was agreed last summer, Gerovasili said.

“Technical experts from all institutions and the Greek authorities are continuing their discussions in Athens as part of the first review of the program,” said European Commission spokeswoman Annika Breidthardt. We want the deal “to be implemented fully and faithfully, based on a fair assessment, and are working to make that happen,” Breidthardt said.

Greece warned it’s facing a humanitarian crisis after its northern neighbor Macedonia and other countries blocked the flow of migrants heading further into Europe. More than 120,000 refugees have crossed into Greece in the first two months of the year, according to the United Nations refugee agency, with the government estimating about 25,000 are stranded in the country. The crisis could cost as much as 0.4 percent of gross domestic product in 2016, Bank of Greece Governor Yannis Stournaras told the Financial Times.

Markets Fall

Greece’s economy contracted by 0.3 percent last year, according to the Hellenic Statistical Authority, and the commission estimates a 0.7 percent contraction in 2016. Stournaras said last month that any delay in the completion of the bailout review would weigh on the country’s economic recovery prospects.

A setback in completing the aid review on time would also strain Greece’s liquidity and put pressure on its ability to cover payments starting at the end of March, according to a Greek official familiar with the matter. A cash crunch in addition to spending on the refugee crisis would further hamper the government’s ability to support economic recovery, said the official, who asked not to be named because the matter is private.

Uncertainty over the outcome of negotiations has weighed on Greek markets. The Athens Stock Exchange, which rose 0.7 percent on Tuesday, is the second-worst performing of all major equity indexes tracked by Bloomberg over the last month after Ukraine’s bourse. Greek bonds are the worst performing of all sovereign securities tracked by Bloomberg’s World Bond Indexes this year.

“Technical discussions related to the first review are ongoing,” according to the IMF’s Adriano. “Mission chiefs are expected to return to Athens soon, once there is sufficient progress at the technical level.”

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