Greek Bailout Review Stalls as Troika Demands Final Steps

By Nikos Chrysoloras

Photographer: Kostas Tsironis/Bloomberg

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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.
“It’s crucial that Greek authorities work with the troika to complete the current review,” Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro finance ministers, said Nov. 6 in Brussels. There’s a need for “a clear cut between the finishing of the program and any instruments that will follow up on that from Jan. 1,” he said.

Yields Rise

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 6.5 basis points at 8.13 percent as of 10:44 a.m. in Athens today.
Greece, the epicenter of the sovereign debt crisis from 2010 when it became the first euro-area country to call for an international bailout after its finances spiraled out of control, returned to bond markets this year and is forecast to be the only country in the 28-nation EU other than Germany to have a budget deficit near zero in 2015.
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.

Clock Ticking

Still, it’s not out of the woods just yet. The government and its creditors have to complete the last review of the Greek bailout by 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 to do so could leave Europe’s most indebted state without a financial backstop.
Simone Boitelle, a spokeswoman for Dijsselbloem, declined to comment on the talks. A spokesman for the Greek Finance Ministry also declined to comment on the substance of the negotiations.
Greece has enough cash to take it though to next summer, one of the people said.
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 144.6 billion-euro bailout program 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 the current program beyond 2014 may need to be found, the person said.
Greece’s 2015 budget will be submitted to Parliament for approval on Friday with few additional fiscal consolidation measures, the other person said.
Samaras will meet with Evangelos Venizelos, leader of the government’s junior coalition partner, and Finance Minister Gikas Hardouvelis will brief the country’s president, Karolos Papoulias, later today on the progress of talks. Hardouvelis told reporters in Athens late yesterday that negotiations continued, and declined to say when the troika would return to Greece for completion of the review.
A compromise needs to be found within hours, one of the people involved in the talks said yesterday. Failure to resume the review this week would make it impossible to complete it by Dec. 8, the person 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.