Negotiations Stall Between Greece and International Creditors

Greece’s government and IMF at odds over “contingency” austerity measures
The Wall Street Journal

By NEKTARIA STAMOULI and  MARCUS WALKER
Updated April 26, 2016 4:31 p.m. ET
ATHENS—Negotiations between Greece and its international creditors ran into trouble on Tuesday over demands for extra austerity measures, denting hopes for a quick end to the monthslong deadlock over the country’s bailout.

The impasse is the latest in a saga of troubled talks. The Greek government and the International Monetary Fund are at loggerheads over how to find up to €3.6 billion ($4 billion) in so-called contingency measures, or additional austerity, if Greece misses its budget targets.



Finance Minister Euclid Tsakalotos has argued since last weekend that the savings should come by trimming public spending across all government departments if Greece’s fiscal watchdog says it is needed.

But IMF officials argue across-the-board cuts make little sense, and that the ax should fall where there are still inefficiencies. That, in the IMF’s view , mainly means cutting pensions and eliminating income-tax exemptions—politically explosive overhauls for most any government.

Greek and some European Union officials had hoped an agreement could be reached quickly and approved by eurozone finance ministers on Thursday.

But that meeting was postponed on Tuesday. “More time needed,” tweeted Michel Reijns, the spokesman for Dutch Finance Minister Jeroen Dijsselbloem, who presides over the so-called Eurogroup.

“Meeting on first review, contingency package and debt at later stage,” he added.

It wasn’t clear when negotiations would resume.

Some in Athens fear that if there is no deal—and Eurogroup meeting—by early next week, the group might not convene before May 24, its next scheduled meeting.

That could put Greece under financial strain because of the additional time that might be needed to seal all the agreements. Greece has large debts coming due in July and is facing potential default if fresh bailout funds aren’t unlocked before then.

Greece’s government coffers are emptying rapidly and the remaining cash reserves in the public sector will probably run out in June, according to some European officials.

If the reserves run dry, Greece could be forced to delay paying public-sector wages or pensions—or else default on loan repayments to the IMF, like it did in 2015.

But more likely, say European officials, is that Prime Minister Alexis Tsipras’s government would be forced to offer the IMF the targeted fiscal cuts that it wants.

The next Eurogroup meeting is intended to start talks about relieving Greece’s debt burden by restructuring European bailout loans.

But that discussion can only happen after Greece agrees to a fiscal-retrenchment plan that the IMF approves.

Mr. Tsakalotos has argued in recent days that enumerating budget cuts that are contingent on future budget data isn’t allowed under Greek law.

Greek officials also say the specific and deep cuts the IMF wants could trigger a revolt among lawmakers, threatening the survival of the governing coalition. In contrast, cross-the-board savings that aren’t enumerated in advance would be legally and politically more feasible, these Greek officials say.

Greek government members, frustrated by the IMF’s insistence on cuts targeting politically sensitive areas such as pensions, have invested much effort into trying to persuade other European capitals—including Berlin and Paris—to show Athens more political understanding.

Up to Tuesday, there was little sign of that tactic working, however. Germany, the dominant creditor, isn’t pressing the IMF to accept Greece’s proposals, said people familiar with Berlin’s thinking.

Write to Nektaria Stamouli at nektaria.stamouli@wsj.com and Marcus Walker at marcus.walker@wsj.com