Greece Given 48 Hours to Reach Deal as EU Weighs Debt

by Mark DeenArne DelfsChristos Ziotis

June 22, 2015 — 10:29 PM EEST Updated on June 23, 2015 — 10:57 AM EEST

Bloomberg

Greek Prime Minister Alexis Tsipras has 48 hours to bring a deal with his country’s creditors to the finish line and end a five-month standoff over aid that risks splitting the euro.

After a day of marathon talks on Monday, leaders from Greece’s 18 fellow euro-zone countries agreed that Tsipras’s government was finally getting serious about striking a deal after it submitted a set of reform measures that began to converge with the terms demanded by creditors.

As the political discussions continue, the European Central Bank on Tuesday raised the limit on emergency funding available to Greek banks, according to a person familiar with the matter who asked not to be identified because the decisions are private.

European leaders agreed in Brussels to step up the pace of negotiations to secure a breakthrough on Wednesday that they can sign off at the end of the week. Disagreement remains over the fine print, with revenue from sales-tax rates the chief sticking point, an EU diplomat said.

The package of proposals represents “a certain step forward, but it was also said very clearly that we’re not yet where we need to be,” German Chancellor Angela Merkel told reporters in Brussels after Monday night’s emergency summit. “Hours of the most intensive deliberations lie ahead of us.”

Bonds Rise

Greek government bonds and stocks rose Tuesday, extending a rally sparked by hopes of an imminent deal after Tsipras’s government submitted the new proposals addressing the areas of pensions and fiscal targets that had proven the chief barriers to a deal. The yield on the 2-year bond fell 197 basis points to 22.4 percent at 10:55 a.m. in Athens. The Athens Stock Exchange Index was trading 2.5 percent higher, after surging 9 percent on Monday.

Tsipras is also bracing for a battle at home as any agreement will need backing from the country’s parliament. The most difficult task will be convincing hardliners in his own government to support a deal that would breach his Syriza party’s pledge to end austerity.

“Every lawmaker has a personal responsibility to recognize and understand not just the urgency of the moment, but the urgency of the whole project,” Greek government spokesman Gabriel Sakellaridis said Tuesday in an interview with Mega TV.

Germany insists on Greek lawmakers taking the first step by passing economic policy changes before the German lower house of parliament will agree to a revised aid deal.

Limit Raised

The ECB’s Governing Council raised the limit on funding for Greek lenders in a telephone conference on Tuesday, the person said, without specifying the size of the increase. An ECB spokeswoman declined to comment.

Policy makers lifted the emergency assistance available to Greek banks by about 1.9 billion euros ($2.1 billion) to 87.8 billion euros on Monday, and are setting the aid level almost daily as Greece edges closer to a potential default.

The debate will shift back to Brussels on Wednesday when euro-area finance ministers meet to prepare the ground for a second, scheduled summit of European Union leaders that begins the following day.

Negotiations with creditors will continue over the coming 48 hours to achieve a “total and viable solution,” Tsipras said early Tuesday. The government aims for the country “to be able to stand again on its feet very soon.”

Work Remains

With the clock ticking toward a June 30 deadline both for the expiry of the European portion of Greece’s bailout and payments to the International Monetary Fund, leaders stressed a lot of work must still be done in the time available. While they didn’t discuss the IMF payment, they did raise Greece’s future financial viability given its debt load, the highest in Europe.

French President Francois Hollande cited “the lengthening of maturities, or re-profiling of the debt,” saying that “it needs to be indicated as a forthcoming step,” albeit not in the coming days.

Merkel said that rendering Greece’s debt sustainable wasn’t discussed in detail, but “it became clear that this question of financial viability has to be part of the agreement.”