Greece Targets May Deal as Breakthrough Remains Elusive

Bloomberg 

by Nikos ChrysolorasJeff BlackMarcus Bensasson

4:02 PM EEST

May 3, 2015

Greece said it would push for an agreement with its creditors on a reforms agenda in May amid signs that the two sides are still far apart after four days of intensive negotiations.

Differences remain on issues ranging from fiscal assumptions to asset sales and labor and pension reforms, according to three people familiar with the negotiations. Still, progress has been made in a much improved atmosphere, they said. Another official said that Greece should have enough cash to get through the week and make a 200-million-euro payment to the International Monetary Fund on May 6. The people spoke on condition of anonymity as the talks are confidential. Negotiations resume Monday.

Greek prime minister Alexis Tsipras met on Sunday evening with Finance Minister Yanis Varoufakis and the head of his government’s negotiating team Euclid Tsakalotos to review the status of the talks.

Negotiators have made significant progress and Greece and its creditors aim to reach an agreement at a technical level in May, a Greek government official said in an e-mailed statement after the meeting. The government is targeting a successful conclusion of the next round of talks by Wednesday, in time for a meeting of euro-area finance ministers on May 11 to take note, said the official, who asked not to be identified in line with policy.

Greece hopes there will be enough progress this week to allow the ECB to relax liquidity conditions and avert a default that could come as soon as this month.

Fiscal Noose

The fiscal noose is tightening on Greece after weeks of brinkmanship and Prime Minister Alexis Tsipras may need to show the European Central Bank in the coming days that he’s willing to work toward a compromise. Failure to do so could prompt the ECB to tighten conditions on emergency lending at a meeting on May 6, a decision which would risk pushing Greece further toward default.

Euro-area officials are skeptical that a technical agreement will be reached by May 6, said two people familiar with the talks, asking not to be named because the talks are private.

“It’s clear that we need an interim agreement as soon as possible to unclog the situation,” Greek government spokesman Gabriel Sakellaridis said on Saturday. “The continuation of this uncertainty benefits neither Greece nor Europe.”

Funding Restrictions

On May 6, the ECB’s Governing Council is due to discuss whether to increase discounts on the collateral it accepts from Greek banks in return for emergency funding, a move that could further restrict access to liquidity. Greece is faced with a second payment to the IMF of 770 million euros on May 12.

The stance of the governing council will depend on the progress achieved in the talks in the meantime, one of the people said, adding that restrictions on Greek banks can only be eased once it’s absolutely clear that bailout funding will resume.

Tsipras told his cabinet on Thursday he’s confident of closing a deal soon, even as his government sent conflicting signals on its willingness to agree on reforms required under the 240 billion-euro ($268 billion) bailout.

Investor optimism that a deal to unlock financial aid for Greece is close 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.

Nevertheless, there are signs of dissent within Tsipras’s government with some government officials, including Varoufakis, stressing their opposition to pension cuts or a sales tax increase. Officials earlier had expressed hopes that a preliminary agreement could have been reached by Sunday.

Working Hard

While the government is working hard to get a deal as soon as possible, it will draw the line on matters such as labor market reforms and cuts to wages and pensions, Sakellaridis said.

Despite progress on the process, there is still a long way to go on the substance of the reforms needed to reach an agreement, another person familiar with the talks said earlier.

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

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

Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem said it was too early to say whether talks with Greece had reached a turning point.

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