Photographer: Kostas Tsironis/Bloomberg

Greek Markets Tumble as EU Holds Up Payment Amid IMF Doubts

Updated on
  • Government said to admit most bailout actions still pending
  • IMF says reforms still needed, debt is highly unsustainable

Greek stocks and bonds fell on Monday after the government in Athens failed to bridge differences with European creditors over the conditions attached to the country’s latest bailout review and the International Monetary Fund warned that its debt is on an unsustainable path.

Almost two-thirds of the actions creditors have demanded for the disbursement of the next tranche of emergency loans have yet to be completed, the government conceded in a memo discussed between Finance Minister Euclid Tsakalotos and bailout auditors last week in Brussels, a person familiar with the matter said.

Even though the memo laid out a series of commitments to ensure the work will be completed, creditors said the proposals weren’t good enough, a separate official said. The people asked not to be named as the contents of the memo haven’t been made public.

Europe’s most indebted state is locked in talks with officials representing the European Stability Mechanism, the European Commission, the European Central Bank and the IMF over the terms attached to the loans keeping it afloat since 2010.

Greek stocks fell 3.5 percent to their lowest since Dec. 15 at the close in Athens, while yields on 10 year-notes rose 48 basis points to 7.66 percent, amid renewed doubts about the prospects for completing the review before national elections in the Netherlands, France and Germany later this year.

IMF staff said in a draft report obtained by Bloomberg that the current structure of Greek public finances is “fundamentally inefficient, unfair, and ultimately socially unsustainable,” adding to doubts about whether the Fund will eventually re-join the Greek bailout. Euro area governments -- notably Germany -- have said failure to get the IMF on board would require a new agreement, which needs to be approved by national parliaments.

IMF Demands

In addition to asking for a lower income tax threshold and pension cuts for current retirees, a demand the Greek government doesn’t accept so far, the IMF is also pushing for the European creditors to off more debt-relief measures.

“We believe that Greece’s debt burden can be manageable if the agreed reforms are fully implemented,” a spokesman for the euro area’s crisis fund said Sunday.

The government of Alexis Tsipras sought a compromise in its memo sent last week, offering to commit to budget surplus before interest payments equal to 3 percent of Greek gross domestic product for five years, falling to 2.5 percent for the next five years, and converging to a steady state of 2.3 percent from 2029 onward. The proposal would allow Greece a lower budget surplus than envisaged in its current bailout agreement, though higher than the level proposed by the IMF, which would require substantial debt-relief measures.

A European official told reporters in Brussels last week that Greece must resolve the standoff by the next meeting of euro area finance ministers on Feb. 20, before as many as five European nations hold elections that will make negotiations politically difficult. Pending issues in the ongoing talks include closing a projected budget hole in 2018, labor-market overhaul, as well as energy-market reforms, according to the Greek government memo discussed last week.

— With assistance by David Goodman

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