By: Jim Brunsden, Brussels
Euro area locked in race to beat July deadline
Greece’s creditors failed to reach a deal on debt relief for the country during seven hours of talks on Monday night, leaving the euro area locked in a race against time to finish the negotiations before Athens faces crippling repayment deadlines in July.
Talks broke up as Germany, Greece and the International Monetary Fund sparred over the next stages of the €86bn bailout, and notably over how to ease the country’s debts once its rescue programme expires in 2018.
Euro area finance ministers had hoped that their meeting with IMF officials in Brussels would broker a deal to bring the Washington-based fund into the bailout — a step that Berlin has said is essential if the country is to receive its next tranche of rescue money.
Instead, talks stalled over IMF calls for the euro area to add further detail to debt relief options for Greece that ministers sketched out last year.
Diplomats said that, although ministers held in-depth talks on maturity extensions for bailout loans, and other options for debt easing, more time would be needed to conclude a deal.
Dutch finance minister Jeroen Dijsselbloem, who chaired the meeting, said that the new target was to conclude the talks on June 15 — the next scheduled meeting of euro area finance ministers.
“I’m sure we can be successful if we take a little more time,” he said, stressing that it was still a priority for ministers to bring the IMF into the programme.
Poul Thomsen, director of the IMF’s Europe department, said the talks had made progress but said the euro area had to be more specific about what debt relief it was prepared to offer, and inject “more realism” into its assumptions about Greece’s long-term economic performance.
“We are making progress, there is no doubt about that,” he told reporters on Tuesday morning. “We are not quite there yet.”
Mr Thomsen also praised a package of tax and pension reforms adopted by Athens last week, saying it is “very strong” and tackles “some difficult, sensitive issues.
”On their way into Monday’s talks, ministers had spoken optimistically of finding a compromise that would unlock the next stages of the bailout and set Athens on a steady path of recovery. But that early confidence evaporated as the gap between the euro area and fund positions became clear.
The IMF has consistently argued that Greece’s debts are unsustainable, and that a substantial easing is needed to put the country on a sound fiscal path. Berlin, on the other hand, has been in the vanguard of capitals that are reluctant to open the door to far-reaching debt relief.
Diplomats said talks foundered over a convoluted compromise that would have seen the IMF sign up to the bailout but only provide funding once debt-relief measures were put in place.
This was strongly opposed by Euclid Tsakalotos, Greece’s finance minister, who argued that a clearer decision was needed on debt relief.
More time is needed “to reach an understanding of how we can have more clarity on the debt measures”. Mr Tsakalotos said after the meeting. “It should not be beyond the wit of man to find that compromise.”
Diplomats said other ministers shared the feeling that more technical work is needed on how such an approach might work.
Greece owes more than €7bn to the ECB, IMF and private sector creditors this July. The country’s debt pile has exceeded 170 per cent of GDP for the last decade and is expected to peak at 179 per cent this year — the highest in the eurozone.
Bruno Le Maire, France’s new economy minister, said a deal “is important for the whole eurozone,” and that it was feasible to reach it in June.
He refused to be drawn on what the euro area would do if it became clear that the IMF could not be brought into the Greece programme ahead of the debt repayment deadlines, saying “that is not the situation we are in at the moment”.
Mr Dijsselbloem said the IMF and euro area had reached understandings on other elements of the Greek programme.
These include having Athens maintain a primary budget surplus equivalent to 3.5 per cent of GDP until 2022. But Klaus Regling, the managing director of the euro area’s bailout fund, cautioned that the clock was ticking. “There is some time to work on this, but not very much,” he said.
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