Greece Races to Bridge Gap With Creditors Before Debt Bill

by Nikos ChrysolorasCorina Ruhe

7:33 PM EEST

May 1, 2015

Greece is locked in negotiations with international creditors as the country races against the clock to avert a default as early as this month.

While talks have picked up pace in recent days, the two sides are still trying to bridge differences on stalled reforms. It isn’t yet clear that there will be enough progress to clinch a deal in time for the planned May 11 meeting of euro-area finance ministers, some officials warned.

“They’re working hard now and that’s what we’ve gained,” Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in the Hague. “But in the end we only look at the results and we’re not that far yet.”

Greek Prime Minister Alexis Tsipras told his cabinet on Thursday he’s confident of closing a deal, even as his government sent conflicting signals on its willingness to agree on reforms required under the 240 billion-euro ($268 billion) bailout. Faced with debt payments totaling about 1 billion euros to the International Monetary Fund on May 6 and May 12, Greece hopes there will be enough progress in the talks by next week to allow the European Central Bank to restore liquidity access for the country’s cash-strapped banks.

Optimism that a deal to unlock financial aid for Greece is near after months of talks put the country’s assets among the region’s best performers in April. The Athens Stock Exchange Index of shares jumped the most by the end of April since September 2012 from a two-year low on April 21. It ended up 6.1 percent in April, the biggest rally in western Europe. Bonds returned 13 percent, as securities across the region fell.

Optimistic Assumptions

Greece and its creditors stepped up efforts to break the impasse with a target to reach a deal by Sunday, three people with knowledge of the talks said earlier this week.

“One thing from the history of the euro crisis that we know is that all of these deadlines can shift, but if there is an actual deadline they will make a decision beforehand,” Christian Schulz, an economist at Berenberg Bank, said in a Bloomberg TV interview on Friday. “They’re still miles apart on pretty much everything.”

Dijsselbloem said it was too early to say whether talks with Greece had reached a turning point. While there has been progress in terms of the process after Tsipras reshuffled the negotiating team, pushing aside Finance Minister Yanis Varoufakis, there is still a long way to go on the substance, a person familiar with the matter said, asking not to be named because the talks are private.

The official said that the Greek government’s economic assumptions are very optimistic, making it difficult to agree on the extent of fiscal adjustment measures the country must adopt to meet goals under its bailout.

The Greek government’s assumptions for deficit, debt and revenue are based on a growth forecast of 1.4% for 2015. The Commission is expected to lower its current forecast of 2.5% to well below the government’s estimate when it issues its spring forecasts on May 5, the official said.

Stumbling Blocks

An agreement with creditors could still meet opposition within Tsipras’s government. Varoufakis said on Thursday that Greece wouldn’t discuss pension cuts or a sales-tax increase as part of the current talks, although he indicated that any pension reform could be part of a broader agreement in June.

For more, read this QuickTake: Greece's Fiscal Odyssey

In a sign that the government may be ready to ease its stance against certain reforms, it plans to invite investors to buy a stake in the country’s main port of Piraeus on May 6, the same day the ECB may discuss the collateral it accepts from Greek banks in return for emergency funding. Greece will proceed this year with the sale or leasing of stakes in several strategic assets, including Piraeus Port Authority SA and 14 regional airports, according to Greek officials with direct knowledge of the matter.

“These steps appear positive, but the real stumbling blocks such as labor market and pension reforms demanded by the creditors still need to be surmounted,” UBS analysts Ricardo Garcia-Schildknecht and Thomas Wacker, who see Greek default risk probability at 50-60 percent, wrote in a note to clients. “We therefore have difficulty seeing how the Eurogroup can unlock the bailout funding under these circumstances.”