EU Pressures Greece to Resolve Issues as New Debt Crisis Looms

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  • Further delay would hurt investor, consumer confidence
  • Eurogroup reiterates calls for Greece to meet loan clauses

The euro area pressured Greece to resolve outstanding pension and labor-market issues with its bailout creditors, as the country missed yet another deadline for unlocking funds this week.

The currency bloc’s finance ministers meeting in Brussels on Monday said that the government of Alexis Tsipras has yet to comply with the terms attached to the emergency loans that have kept the country afloat since 2010. The ministers’ Greek counterpart, Euclid Tsakalotos, will stay in Brussels through the week to continue negotiations with representatives of creditor institutions, in a sign of increasing urgency after months of talks failed to break the deadlock.

“All the stakeholders emphasized today that we have to avoid delays,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference after the meeting. “That would be very harmful. That would impair the confidence of investors and consumers. That would be detrimental to economic recovery.”

Moscovici added: “Everyone wants to reach a conclusion as swiftly as possible.”

Edging Closer

Greece is edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted state to the edge of economic collapse. A Greek government official in Brussels declined Monday to say whether the country can meet debt payments due this July. 

The Greek government, which has more than 7 billion euros ($7.5 billion) in bond payments due in July, has balked at implementing mandated reforms to its energy and labor markets while also resisting calls for additional pension cuts. A meeting between Finance Minister Tsakalotos and representatives of creditor institutions before the Brussels meeting didn’t yield sufficient progress for bailout auditors to agree to return to Athens and complete the review, according to an official, who asked not to be named as negotiations aren’t public.

Greece’s creditors “must conclude in its review that the conditions are met and they’re laid down precisely in the agreement,” German Finance Minister Wolfgang Schaeuble told reporters before the meeting. “Apparently it’s still difficult between the institutions and the Greek government to put the general agreement in concrete terms.”

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Stalled bailout reviews and acrimony between successive governments and auditors representing creditor institutions are all too familiar themes in the seven-year crisis that has reduced the Greek economy by a quarter. And while discussions continue on how to overhaul the labor market, a finance ministry official said in an email to reporters on Friday that the issue can’t be solved in talks with technocrats.

Even as Greek bonds have performed better than most of their euro-area peers this year on expectations that the government will capitulate, uncertainty has weighed on economic activity, raising the risk that an additional bailout may be needed. Unemployment rose in the last quarter of 2016, the economy unexpectedly contracted, and a bleeding of deposits from the nation’s battered lenders resumed.

“The Greek recovery is once more significantly delayed by politics,” said Nicholas Economides, a professor of economics at New York University’s Stern School of Business. “Tsipras will blink at some point in time, the question is when.”

— With assistance by Marine Strauss, Giovanni Salzano, Sotiris Nikas, and Ian Wishart

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