Creditors Reject Greece's Reform Proposals

by Nikolaos Chrysoloras

Eleni Chrepa

(Bloomberg) -- Greece’s provisional agreement with creditors to avert a default started to crack as European officials said the country’s latest proposals fell far short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum if their reforms are rejected.

The list of measures Greece’s government sent to euro-region finance ministers last Friday, including the idea of hiring non-professional tax collectors, is “far” from complete and the country probably won’t receive an aid disbursement this month, Eurogroup Chairman Jeroen Dijsselbloem said on Sunday. German Deputy Finance Minister Steffen Kampeter said ministers are not expected to advance on Greece today.

“It’s not enough to exchange letters with non-committal statements,” Kampeter told Deutschlandfunk radio. “What’s needed is hard work and tough discussions.”

Greece’s anti-austerity government, elected in January on a promise to renegotiate the terms of a 240 billion-euro ($261 billion) bailout, has to present detailed proposals to European creditors or risk running out of cash as soon as this month. The renewed tensions threaten to temper a rally in Greek bonds sparked by optimism over the provisional accord.

“It seems their money box is almost empty,” Dijsselbloem said at an event on Sunday organized by Dutch newspaper de Volkskrant in Amsterdam.

Bonds Decline

Greece must adhere to its commitments as a “first step to restore trust” among its euro-area peers, Valdis Dombrovskis, European Commission vice-president for euro policy, said in interview with Finnish newspaper Helsingin Sanomat.

Greek bonds fell, with the yield on 10-year government bonds gaining 40 basis points to 9.8 percent. The Athens Stock Exchange index declined 3 percent as of 11:33 a.m. local time.

The country is seeking the disbursement of an outstanding aid tranche totaling about 7 billion euros. Without access to capital markets, its only sources of financing are emergency loans from the euro area’s crisis fund and the International Monetary Fund. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank.

“I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis told Italy’s Il Corriere della Sera in an interview Sunday. “For the rest we will see.”

Referendum Considered

Varoufakis said on the weekend that if the country’s creditors raise requests that aren’t acceptable to the government, then the people of Greece may have to decide on how to break the deadlock. Prime Minister Alexis Tsipras also signaled the referendum option is being considered.

“If we were to hold a referendum tomorrow with the question, ‘do you want your dignity or a continuation of this unworthy policy,’ then everyone would choose dignity regardless of difficulties that would accompany that decision,” Tsipras told Der Spiegel Magazine in an interview published Saturday.

Tsipras is walking a tightrope between sticking to his election pledges, which found resonance in a country with a 26 percent unemployment rate, and avoiding default and a possible exit from the euro region.

The last time a Greek leader mooted the idea of a referendum it didn’t go down very well in the euro region. Former Prime Minister George Papandreou suggested his people have a say on the bailout agreement he’d reached in October 2011. Within a month, he’d lost his job and a new interim government was in place.

‘Mission Impossible’

Some of Tsipras’s post-election glow is starting to fade, one opinion poll showed. A survey conducted by Marc for the Efimerida Ton Syntakton newspaper on Saturday showed 64 percent of Greeks had a positive opinion of the government, down from 83.6 percent in February.

“Maintaining the unity of the anti-bailout coalition, while striking a deal which would ease the immense pressure on the economy, is proving to be almost a ‘Mission Impossible,’” said George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business.

Tsipras’s administration sent a set of commitments Friday to Dijsselbloem, in the hope that the policy proposals would pave the way for the disbursement of aid.

Two officials representing creditor institutions said the proposals, which include tackling tax avoidance through non-professional inspectors and equipping citizens with chipped smart cards, aren’t enough to unlock bailout funds. The plans are amateurish and don’t signal substantial progress to meeting the commitments it made on Feb. 20, they said, asking not to be identified as negotiations are private.

Greek Letter

In its letter requesting an extension to the bailout last month, Greece’s government had committed to streamline sales tax rates, with a view to limiting exemptions, implement a comprehensive review of government spending in every sector, and auction digital frequencies used by TV channels.

The letter, which was sent to euro area finance ministers on Feb. 23, and got their approval the day after, also included a commitment to pension reform, the elimination of loopholes and incentives that give rise to an excessive rate of early retirements, and the removal of barriers to competition in its goods and services markets.

With about 2 billion euros of debt-servicing payments, including Treasury bill redemptions and IMF obligations coming due on March 13, Greece’s government has little room to maneuver. If talks between finance ministers in Brussels fail, the government may have to decide its next step fast.

“Time is running short for Greece,” ECB Executive Board member Benoit Coeure said in interview with Cypriot newspaper Politis published Sunday.

To contact the reporters on this story: Nikos Chrysoloras in Athens at nchrysoloras@bloomberg.net; Eleni Chrepa in Athens at echrepa@bloomberg.net

To contact the editors responsible for this story: Heather Harris at hharris5@bloomberg.net; Vidya Root at vroot@bloomberg.net Heather Harris, Rodney Jefferson