Greece Rescue Payout Moves Closer With Deal to Quicken Talks

Greece and its international creditors struck an agreement at a meeting of euro-area finance ministers in Malta on Friday, breaking the latest deadlock over the country’s rescue and paving the way for about 7 billion euros ($7.5 billion) in aid for Athens.

The two sides, which have been wrangling over key economic overhauls for months, reached a tentative agreement which allows bailout auditors to return to Athens to finish negotiations on the measures that Greece needs to implement to qualify for the next tranche of emergency loans. Although Friday’s decision represents progress, the euro area won’t unlock the payout until their audit is concluded.

“The big blocks have now been sorted out and that should allow us to speed up and go for the final stretch,” Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area meetings, told reporters at the conclusion of the talks. “Further work will continue in the coming days with a view of the mission returning as soon as possible to Athens to complete the work.”

Talks between the government of Prime Minister Alexis Tsipras, euro-area creditors and the International Monetary Fund have been stalled for months as the parties haven’t been able to agree on how to amend Greece’s pensions, labor market and tax system. Greece finally accepted a proposal which was presented earlier this week.

Economic Measures

Under the terms of the deal, Greece will legislate fiscal measures worth 2 percent of its nation’s gross domestic product, Dijsselbloem said. Half of that should come in 2019, mainly through pension reform, and the rest in 2020 through changes to the income tax. Finance chiefs agreed that Greece will be allowed to push through expansionary measures at the same time if its budget performance exceeds targets, while measures scheduled for 2020 will be accelerated if the IMF assesses that is likely to fall short of targets.

“Everybody is focused on the overall deal to get the Greek economy back on track,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting. “Time is of the essence and we need a deal very quickly.”

No precise date for the return of the supervisors has been decided, but will probably be at the start of next week or right after Easter, officials involved in the discussions said. Dijsselbloem said it should happen “as soon as possible.”

“We can and want to reach a solution for Greece in a short period of time,” German Finance Minister Wolfgang Schaeuble told reporters as he entered the meeting. “Uncertainty in Greece will grow if it takes longer and no one can want that, and the IMF also can’t want that in the end.”

Diverging Forecasts

Schaeuble said one of the hurdles in coming to an agreement was that forecasts diverged between the institutions on Greece’s economic development and the primary surplus, with the IMF always taking “a somewhat more pessimistic view than the Europeans. The fact is that in past years the IMF has always been somewhat too pessimistic compared to reality,’’ he said.

In the summer of 2018, the IMF will decide on whether tax measures scheduled to kick in for 2020 will be instead brought forward to 2019, two people familiar with the matter said. Even though the IMF will make its decision in consultation with European auditors, the fact that its was given the decisive role in deciding the timing of the new austerity measures may create additional problems for Tsipras, as he seeks the backing of his lawmakers for Friday’s compromise.

Greek markets rose on the news, with yields on 10-year notes dropping 23 basis points to 6.9 percent at 5:55 p.m in Athens. The benchmark Athens Stock Exchange general index rose 1.5 percent.

JPMorgan Chase & Co. analysts Marco Protopapa and Aditya Chordia said they expect yields on 10-year notes to drop to between 5.5 percent and 6 percent if the review is concluded swiftly, allowing for the inclusion of Greek bonds in the European Central Bank’s quantitative easing program. “Today’s Eurogroup delivered a much needed breakthrough that seems to clear most of the obstacles in the way of second review conclusion,” the analysts said in a note after the meeting.

Greece is hoping a conclusion to the negotiations will allow for an aid disbursement before it has to make more than 7 billion euros in bond payments in July. While Greece doesn’t face any imminent liquidity trouble, it still has to meet the debt payments that month and the uncertainty over its bailout weighs on the country’s economy.

Debt Talks

Agreement on fiscal policies would also clear the way for what are expected to be thorny discussions over easing the country’s debt load.

Still, even when the creditors return to the Greek capital, other technical issues, including reforms to the energy sector, will also need to be agreed on before the review can be completed. “A number of policy issues remain outstanding,” IMF spokesman Gerry Rice said in a statement. “But we are at a point where we think there are good prospects for successfully concluding discussions on these outstanding policy issues during the next mission to Athens.”

Greece and investors need an agreement that all the euro area can sign up to, European Economics Commissioner Pierre Moscovici told reporters after the meeting. “The time is ripe to bring an end to uncertainty which has been burdening the Greek economy for too long.”

— With assistance by Alessandra Migliaccio, Sotiris Nikas, Corina Ruhe, Birgit Jennen, Carolynn Look, Alessandro Speciale, Rainer Buergin, Lorenzo Totaro, and Stefania Spezzati