EU Sends Envoy to Salvage Greece Deal as February Date Looms

Updated on
  • EU’s Moscovici to meet Tsipras and Tsakalotos in Athens
  • Creditors ask Greece to legislate more measures for 2019

Pierre Moscovici.

Photographer: Simon Dawson/Bloomberg

Greece and its creditors are intensifying efforts to complete a stalled review of the nation’s bailout that would unlock much-needed aid before more than 6 billion euros ($6.3 billion) in obligations come due in July.

EU Commissioner for Economic Affairs Pierre Moscovici met with Greek Prime Minister Alexis Tsipras and Finance Minister Euclid Tsakalotos in Athens Wednesday to try to reconcile differences over what reforms are needed to stabilize the country’s economy. European rescue monitors had wanted a deal reached by Feb. 20 when euro-area finance ministers gather in Brussels.

“The will to go to a solution is there, and where there is a will there is a way,” Moscovici told reporters after his meeting with Tsakalotos. “I hope that we can find the best solution as well for Greece and its partners inside the euro zone because my feeling is, and always was, that we need a strong Greece at the heart of the euro zone.”

Greece has been at odds with its bailout creditors, who have insisted that Tsipras’s government pass legislation that would trigger further budget cuts if fiscal targets are missed. And while the International Monetary Fund has taken a more severe stance on Greece’s economic projections and what remedies are required to make its debt sustainable, European Union nations including Germany and the Netherlands have deemed the Washington-based fund’s participation necessary.

Moscovici told reporters after his meeting with Tsipras that he was trying act an an “honest broker” in the talks, and his goal was for the Feb. 20 meeting to conclude that the parameters are in place for a Greek deal. That deal would need to include the IMF, which guarantees security for Greece too, he said.

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Greece can discuss a mix of policies that are fiscally neutral, Tsipras said in televised comments at the start of the meeting. He reiterated that the government will not pass a single euro of additional austerity.

The country’s stocks and bonds fell on Wednesday, with the yield on the two-year notes rising 44 basis points to 9.78 percent at 1:20 p.m. in Athens. The Athens Stock Exchange index dropped 1.4 percent.

“It’s crucial that all partners now live up to their commitments so that an overall policy package can be reached as soon as possible,” European Commission Vice President Valdis Dombrovskis told the European Parliament in Strasbourg, France, on Tuesday. “There is no room for complacency.”

Greece’s bailout auditors -- the commission, the European Central Bank, the European Stability Mechanism and the IMF -- have proposed fiscal cuts equal to 2 percent of its gross domestic product, including a lower tax-free threshold and pension reforms, according to a person familiar with the talks who asked not to be identified. In return, the Greek government will be able to reduce some taxes or social contributions if there is fiscal over-performance.

Athens denied that such a deal is being discussed.

Greek gross domestic product fell 0.4 percent in the final three months of 2016 after growing a revised 0.9 percent in the previous quarter, the Hellenic Statistical Authority said in an e-mailed statement on Tuesday. The economy grew 0.3 percent over the whole year, according to Bloomberg calculations, in line with a report from the commission on Monday, and compares with its prior forecast for a 0.3 percent contraction.

Greece also beat its 2016 fiscal target, the commission said, achieving a budget surplus before interest of 2.3 percent of gross domestic product, compared with a goal of 0.5 percent. The surplus will widen to 3.7 percent in 2018, in line with targets, provided the government implements the terms of its 86 billion-euro ($91 billion) bailout program, the commission said.

That’s at odds with the IMF’s view that the surplus won’t get above 1.5 percent without more cuts.

“A political deal followed by technical implementation in a lesser-profile setting” is the best-case scenario, Eurasia analyst Mujtaba Rahman wrote in a client note on Tuesday. “For a political agreement, Germany and the IMF are going to have to signal a degree of flexibility they have not been willing to show to date.”

— With assistance by Sotiris Nikas, Jonathan Stearns, and Richard Bravo

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