Greek stalemate to last until after Easter as Goldman Sachs warns of costly Grexit

Investment bank says "damage has been done" as creditors continue to squeeze Athens for more reforms in return for cash

The Telegraph 

By Mehreen Khan4:30PM BST 31 Mar 2015

Greece's bail-out stalemate showed no signs of easing after a long weekend of delay and frustration for Athens officials in Brussels.

Representatives of the Greek government returned to the country on Tuesday having failed to seal an agreement on the economic reforms they will need to carry out in order to satisfy the demands of its international lenders and unlock €7.2bn in bail-out funds.

European Union president Donald Tusk said he was not hopeful a deal would now be completed before Easter, estimating a more realistic target of the end of April.

Greece celebrates Easter in accordance with the Orthodox calendar, over the weekend of April 10-13, which could delay any potential final meeting of the Eurogroup for two weeks.

The deadlock continued as investment bank Goldman Sachs warned the hiatus had already caused significant damage to the Greek economy.

Capital flight, which has reached an estimated €15.2bn over the last three months, has resulted in a "tightening in financial conditions" and "is a severe shock for an economy," Goldman strategists said in a note to clients.

The Greek government hopes to hit an ambitious budget surplus of 1.2pc of GDP by the end of 2015, a forecast which is contingent on the economy growing by 1.4pc this year. This was a "generous-sounding" calculation particularly if creditors reject Greece's plans, said Robert Kuenzel of Daiwa Capital Markets.

Members of the Eurogroup of eurozone finance ministers are now due to discuss Greece's proposals at a teleconference on Wednesday.

Creditors are continuing to demand the Leftist government carry out more in the way of drastic wage and pension cuts to reduce its spending bill.

But in a draft version of the circulated proposals, the anti-austerity government only laid out a number of revenue-raising measures such as clamping down on illegal smuggling, tax evasion, and imposing a tax on some Greek islands.

A defiant Greek prime minister told parliamentarians on Monday, he was not willing to "unconditionally submit" to the stranglehold of the country's creditors and would not impose further recessionary measures on the economy.

In a sign of deterioating trust between Greece and Europe, Mr Tsipras voiced his opposition to EU sanctions on Russia, ahead of a trip to Moscow next week.

“We disagree with sanctions, I see it as a road to nowhere," he told Russian state-run news agency Tass.

The European Central Bank is also likely to have its say on the deadlock as it decides whether to continue drip-feeding the emergency funding it has been providing Greek banks since February.

Bank deposit flight is estimated to have slowed to €3bn in March, but Danièle Nouy, head of the ECB's supervisory board, warned talks would have to be resolved quickly to stem the uncertainty over the country's continued membership of the eurozone.

Germany's Angela Merkel cautioned there would be no disbursement without an agreement with international lenders.

"Time is of the essence -- that means there is no time to lose so I think we need to continue working," Ms Merkel told a press conference in Berlin on Tuesday.

Ms Merkel is facing rebellion among her conservative coalition, after a senior member of her sister party resigned in opposition to German support for Greece's bail-out extension.