Greece and Germany Are Working Toward a Compromise

by Rebecca ChristieEleni and ChrepaBirgit Jennen

(Bloomberg) -- Greece and Germany are pursuing a deal on the conditions required to continue the Greek bailout as each side signals a willingness to compromise, according to government officials taking part in the talks.

Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget surplus requirement and conditions to sell off government assets.

For its part, Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4 percent of gross domestic product, according to Greek government officials. Prime Minister Alexis Tsipras’s coalition also might be willing to compromise on privatizations, one of the officials said. All the officials asked not to be named because the deliberations are private and ongoing.

“Europe -- and this is Europe’s success -- is always about finding a compromise,” Chancellor Angela Merkel said as she arrived for a summit of European Union leaders in Brussels Thursday. “You make compromises when the advantages outweigh the disadvantages. Germany is ready for that, but you also have to say that Europe’s credibility depends on us sticking to the rules and that we deal with each other in a reliable way.”

Behind-the-scenes negotiations resumed in Brussels hours after euro-area finance ministers failed to reach a joint conclusion. The Greek side and euro-area experts are due to meet in Brussels tomorrow to discuss the way ahead as they struggle to decide whether to call the arrangement an extension, a new program or a bridge deal, officials said.

Mutually Viable

Greece’s willingness to hold to more than two-thirds of its bailout promises shows that Greece is broadly prepared to stick to the program, the German officials said. Improving tax collection and fighting corruption will win German backing, and getting a deal will depend on Greece’s overall reform pledges.

“I am very confident that all together we will find the mutually viable solution to heal the wounds of austerity, to tackle humanitarian crisis across the European Union and to bring Europe back to the road of growth and social cohesion,” Tsipras told reporters as he arrived for the leaders’ talks.

Greek bonds rose Thursday as euro-area ministers held out hope of a bailout compromise, with the yield on three-year notes falling 269 basis points to 18.05 percent. The benchmark Athens Stock Exchange General Index closed 6.7 percent higher at 846.48.

Greece and its partners are seeking a deal on some form of financing that gets them beyond the bailout’s expiration at the end of February, keeps banks afloat, pays salaries and puts the euro area’s most-indebted nation on a path to longer-term aid. Ultimately, Greece’s place in the 19-nation currency union is at stake.

‘Creativity’ Needed

The respective policy positions suggest a deal is coming into focus after talks in Brussels collapsed early Thursday as ministers failed to agree on the wording of a joint statement. An accord could pave the way for Greece to extend its rescue program and assure its financing by as soon as Monday, when finance chiefs return to Brussels.

Belgian Prime Minister Charles Michel said “creativity” and “determination” will be needed to reach a fresh financial deal between Greece and the rest of the euro area. Michel and Tsipras met Thursday in Brussels, as the Greek premier sought “understanding” for his government’s positions.

In a bid to restart work towards a solution, Tsipras also met Thursday with Dutch Finance Minister Jeroen Dijsselbloem, who heads meetings of his euro-region counterparts. The Greek side agreed to let a team of euro-area experts “engage with the Greek authorities to start work on a technical assessment of the common ground” on future financing, Dijsselbloem spokeswoman Simone Boitelle said in an e-mail.

The collegial conversation marked yet another reversal in relations between euro-area officials and Tsipras’s government, which won last month’s election on a platform of ending austerity and easing Greece’s economic hardship.

Bridge Financing

Germany, the biggest country contributor to bailouts, has led calls for Greece to stick to its political promises regardless of any change in government, while France and Italy have been more sympathetic to Greek efforts to secure bridge financing while it works out a longer-term plan.

At Wednesday’s finance ministers’ meeting, Greece signaled it was prepared to ask for an extension to its aid program as long there were revisions to the specific terms attached, one euro-area official said. This marks a shift from Syriza’s public pledges to end the current bailout and pursue only bridge financing agreements.

Greek Finance Minister Yanis Varoufakis, after consulting with Tsipras, balked at a pledge to extend the bailout program without a parallel pledge to amend it, according to euro-area officials. German Finance Minister Wolfgang Schaeuble left the meeting early, after which talks dragged on for hours as debate grew increasing tense, according to participants.

The Brussels summit was the first opportunity for Merkel to meet with Tsipras, who has vowed to free his country from German-led austerity. The two were pictured shaking hands and exchanging pleasantries in English.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Eleni Chrepa in Brussels at echrepa@bloomberg.net; Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Zoe Schneeweiss