Greek Bailout Review Stalls as Troika Demands Final Steps

Greece’s government and its international creditors are deadlocked over a final round of measures required to release the last tranche of the country’s bailout, two people familiar with the negotiations said.

Prime Minister Antonis Samaras’s government is resisting pressure from the so-called troika of creditors for additional budget savings in 2015 of as much as 2.5 billion euros ($3.1 billion), said the people, who asked not to be named because the negotiations are private. The impasse risks leaving Greece without a backstop on Jan. 1 after the program ends, they said.

Troika representatives are furious because the Greek government has failed to come up with any concrete measures to plug the fiscal gap since euro-area finance ministers warned earlier this month about a lack of progress in Greece meeting its commitments, one person said. With the government in Athens refusing to concede there is a funding hole, the standoff means Greece may miss a Dec. 8 deadline for agreement on the steps required to unlock the aid and what comes after it, both said.

“There will be no new austerity measures, no fiscal measures,” Evangelos Venizelos, the deputy prime minister and leader of the junior coalition partner PASOK, said today after meeting with Samaras to discuss the negotiations with the troika. “We will hold our ground.”

Borrowing Costs

Discussions on a follow-up program can begin “only once a staff-level agreement for the completion of the review has been reached,” European Commission spokeswoman Mina Andreeva told reporters in Brussels today. The troika will return to Athens to complete the review “as soon as the conditions are there,” she said.

Uncertainty over what happens once the euro area rescue package expires has triggered a spike in Greek borrowing costs, with yields on 10-year bonds rising from their post-crisis low of 5.5 percent in September. Yields were up 22 basis points at 8.28 percent as of 6:46 p.m. in Athens.

Greece has been the epicenter of the sovereign debt crisis since 2010, when it became the first euro-area country to call for an international bailout after its finances spiraled out of control. The country returned to bond markets this year and is forecast to be the only member of the 28-nation European Union other than Germany to have a budget deficit near zero in 2015.

Economic Rebound

Its economy was the fastest growing in the euro area last quarter, according to the European Union’s statistical agency, and the Organization for Economic Cooperation and Development has said that Greece is the most “responsive” country in the developed world in the implementation of growth-boosting economic overhauls.

Still, its creditors may ask for more ahead of Dec. 8, when euro-area finance ministers are due to hold their final meeting of the year. A successful completion would pave the way for an agreement on a credit line to replace the current program, while failure could leave Europe’s most indebted state without a financial backstop.

While reviews by the troika of the International Monetary Fund, the European Commission and the European Central Bank have been characterized by unforeseen twists and deadlock, the difference now is that Greece’s second bailout from the euro area, worth 144.6 billion euros, is due to expire in a matter of weeks.

Forsaking Aid

A parallel program from the IMF is scheduled to continue through 2016, though the prime minister has said Greece plans to put an early end to its bailout and forsake aid tranches as of next year, a proposal that prompted Greek government bond yields to soar.

Greece needs to put more concrete proposals for next year’s budget on the table to unlock the dialogue, according to one of the people, who said that completion before Dec. 8 is unlikely. A legal formula to extend support to the country beyond 2014 may need to be found, the person said, adding that Greece has enough cash to take it through to next summer.

Greece’s 2015 budget will be submitted to Parliament for approval on Friday with few additional fiscal consolidation measures, the other person said. As a concession, Samaras could repeat his commitment to adopt more corrective measures by the middle of next year if budget data show Greece is missing its targets, the person added, saying that more cuts now could endanger the country’s nascent economic rebound.

The talks are in a “difficult phase” as Greece shifts to a new relationship with its creditors, Finance Minister Gikas Hardouvelis told reporters as he headed into a meeting with the country’s president, Karolos Papoulias. “In situations like this, nerves get stretched” on all sides, Hardouvelis said, adding that disagreements had emerged in the past week.

It will be impossible to complete the review by the Dec. 8 deadline unless work can resume this week, one of people said.

The conditions attached to Greece’s bailout have restored health to public finances while exacerbating the worst recession since World War II. About a quarter of the economy has been wiped out and almost 26 percent of the country’s workforce is still without a job.

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