Greek Talks With Creditors Deepen as Payment Clock Ticks

Bloomberg

by Nikos Chrysoloras

4:58 PM EEST

May 30, 2015

Greek officials and creditor institutions are locked in talks for another weekend as both sides work against a payment deadline to avert default and a euro-region exit.

“The key issue is to resolve the situation so that Greece can remain a member of the euro area,” the European Commission’s vice president, Jyrki Katainen, told Finland’s YLE TV1. “Unfortunately over the past six months things have turned for the worse in Greece, purely for political reasons.”

The standoff between Greece’s anti-austerity coalition and creditors over the terms attached to the country’s emergency loans has triggered a liquidity squeeze, tipping the economy into a double-dip recession.

With just four weeks before a euro-area-backed bailout expires, Finance Ministry officials have told Greece there’s not time to get a disbursement approved by the currency bloc’s parliaments unless they reach at least a technical agreement by the beginning of June.

“If the Greek government refuses to engage in the reform process, it is playing with the future of the country,” said Klaus Regling, managing director of the European Stability Mechanism. “The risk is then great that past sacrifices will have been in vain,” the head of the euro area’s crisis-fighting fund told Germany’s Focus magazine.

Optimism Rebuffed

Greek government spokesman Gabriel Sakellaridis said May 28 that a staff-level agreement with bureaucrats from the European Commission, the European Central Bank and International Monetary Fund can be reached by Sunday. The government has expressed similar optimism several times in the past two months only to be rebuffed by creditors asking for concrete actions in areas including pension and labor market reform, sales taxes and the budget.

“The red line is that there cannot be a deterioration of the overall budget situation and in fact there needs to be an improvement,” French Finance Minister Michel Sapin said Friday in an interview. Bailout talks “are progressing faster but not yet fast enough to conclude.”

Greek stocks and bonds rose this week amid optimism a deal is within reach. “There has been real progress and we remain convinced an agreement can be reached soon,” French Prime Minister Manuel Valls told Italy’s la Repubblica. “We’re absolutely not working on the hypothesis of a Greek exit from the euro.”

Failure to reach an agreement that will pave the way for the disbursement of bailout funds risks leaving Europe’s most-indebted state unable to meet payments to its creditors.

Greece will be able to scrape together enough cash to make a payment of about 300 million euros ($329 million) due to the IMF on June 5, Economy Minister George Stathakis said in an interview with the Real News newspaper published Friday.

“The country has been servicing its loans through internal resources for the past year,” Stathakis said. “It will do the same this time.”