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Greece Bailout Deal Elusive, 'Significant' More Work Needed

  • Associated Press

Greek Finance Minister Yanis Varoufakis, left, and Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici at the Informal Meeting of Ministers for Economic and Financial Affairs of the EU in Riga, Apr. 24, 2015.

Greek Finance Minister Yanis Varoufakis, left, and Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici at the Informal Meeting of Ministers for Economic and Financial Affairs of the EU in Riga, Apr. 24, 2015.

Greece remains at loggerheads with its European creditors on an economic reform program required to unlock bailout loans the country will need to avoid defaulting in coming months and crashing out of the euro.

At a meeting Friday in the Latvian capital of Riga, Greece's finance minister came under fire from his peers in the 19-country eurozone for failing to come up with a comprehensive list of economic reforms after weeks of slow progress.

For some normally restrained finance ministers, it was time to express discontent at what they perceive to be the delaying tactics on the part of the new left-wing Greek government, which came to power just under three months ago.

"It was a very critical discussion,'' said Jeroen Dijsselbloem, the eurozone's top official, after the meeting.

Others spoke of being "tired'' and a little bit "annoyed'' with the way the talks are going.

It wasn't meant to be like this.

Just two months ago, Greece secured an agreement from the eurozone to get the remaining money in its bailout fund — 7.2 billion euros ($7.7 billion) — but only if it came up with a mutually agreed set of reforms. An end-of-April deadline was considered achievable and markets breathed a sigh of relief that the threat of bankruptcy and a Greek exit from the euro had been averted.

But with days to go until that self-imposed deadline, Athens hasn't even presented a full list as it haggles with representatives from the European Commission, the European Central Bank and the International Monetary Fund.

New deadline

European officials are now talking of a new deadline of the end of June, when the European part of Greece's bailout program officially ends. How the country can continue to pay wages and salaries and meet its debt commitments, notably to the IMF, in that period remains sketchy.

The decision this week by the Greek government to scrape together spare cash from municipalities and state enterprises like hospitals and the national gallery is likely to buy it some time. The move could, according to independent estimates, rake in 2 billion euros ($2.14 billion), which would cover its debt payments in May.

Dijsselbloem conceded that there had been a step-change in Athens' appetite for discussion over the past few days but that "significantly more progress'' was required from Athens. He spoke of "wide differences'' between the sides, without specifying where the problems lay. He also ruled out that the creditors might consider a half-way deal that could give Greece part of the pending rescue loans.

Greece's Varoufakis sought to portray the discussions in a more positive light.

"We look at the last few weeks and what we see is convergence,'' he said, noting progress on issues such as privatization, reforming the tax system, the judiciary, the bureaucracy and product markets. A deal will happen, he added, "and will happen quickly as it's the only option we have.''

Pensions, budget requirement

Varoufakis said the main sticking points related to pensions and the level of the budget surplus Athens has to post after debt and interest payments are stripped out — a higher level means less money would effectively mean the government has less money spending on its priorities.

"This is a European family that needs to work out its difference in a collegiate manner,'' said Varoufakis.

All sides agree that the clock is ticking — a notion expressed repeatedly by officials at the meeting here.

The next possible date for a deal could be May 11, when eurozone finance ministers will meet next and just one day before Greece owes a big payment to the IMF.

Greece has relied on 240 billion euros-worth of bailout funds since May 2010 after it was effectively locked out of international bond markets when investors thought a default was on the cards.

In return for the cash, successive governments have had to pursue savage spending cuts and an array of economic reforms. But while the measures have focused on improving public finances, they have also hurt the economy — it has shrunk by a quarter and unemployment rate has sky-rocketed to over 25 percent.

The current government was elected on a promise to end the so-called austerity and that's why it's loathe to enact policies, such as cutting pensions, that go counter to its mandate. Its focus is on fighting corruption, reforming the public sector, and improving the porous tax system.

The prevailing view in markets is that a deal will be cobbled together in time to avoid a Greek debt default, but only when the financial pressure on the country becomes too acute — for example, when the government is out of money to pay its debts or the banks start seeing deposits running dry due to withdrawals by worried savers.

Craig Erlam, senior market analyst at OANDA, thinks the "incentive'' for a deal will only come after Greece "has searched under every cushion and in every drawer and can no longer stump up the cash to continue to pay its way.''

That moment, he added, can't be far away.

That appears to be the consensus among investors. Though the Athens stock market has given up some earlier gains, it is still up 1.5 percent on the day, while the interest rates charged on Greek government bonds were steady.

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