Greece moves step closer to bailout deal, but hurdles remain

Eurozone finance ministers expressed hope Monday that a deal allowing cash-strapped Greece to tap further bailout aid and ease its debt burden can be reached within the next two weeks but warned that tough work still lies ahead.

Athens and its creditors have struggled for months to agree on new reforms and cost-cutting measures that will allow Greece to receive the next tranche of its third, 86-billion-euro (98-billion-dollar) bailout, fueling fears that it is headed back towards bankruptcy.

But pension cuts and income tax hikes voted by the Greek parliament late Sunday helped reinvigorate the negotiations. Finance Minister Euclid Tsakalotos described the talks on Monday in Brussels with his eurozone counterparts as "very good" for Greece and Europe.

Italian Finance Minister Pier Carlo Padoan said the measures passed by parliament were "significant," while Austrian Finance Minister Hans Joerg Schelling praised Greece for making "much more progress" than during its first two international bailouts.

The reform package has proven controversial in Greece, however, with rioters opposed to the austerity measures clashing with police on Sunday.

Athens has also struggled with a new demand by its creditors for a further set of cost-cutting measures that would serve as a contingency to be implemented if the country fails to stick by its economic targets.

The eurozone ministers backed off Monday from requiring specific contingency measures to be legislated upfront, asking instead for the creation of a mechanism which would make it "very clear what happens when, who does what, and that will deliver an additional [cost-cutting] package if necessary."

The mechanism now has to be finalized and Greece still has some remaining bailout actions to implement. Only then will the ministers' Eurogroup panel be "ready to support the disbursement of the second tranche of the [bailout] programme," panel members said in a statement.

This tranche had once been supposed to total 5.4 billion euros, but is now expected to be larger given the delays in the bailout negotiations. Greece has to make more than 3 billion euros in debt payments in July alone.

The staff-level reform deal that will help unlock the tranche is "to be finalized in coming days," European Commission Vice President Valdis Dombrovskis predicted on Twitter.

In parallel, experts will prepare debt relief options for Greece, which eurozone officials hope will - along with the contingency mechanism - convince the International Monetary Fund (IMF) to stay involved in the bailout.

"There are a number of member states - and it's quite broad actually - that cherish the involvement of the IMF, so that is a key element for us," Dijsselbloem noted.

The debt relief measures will include short-term, medium-term and long-term options that would stretch beyond 2018, Dijsselbloem said. The eurozone has ruled out a reduction in value or "haircut" of Greek debt, but maturity extensions, grace periods and interest deferral will be considered.

"There wasn't a meeting of minds on all issues, but there was a clear feeling that people were trying to sort this out and to have debt as one aspect of the overall deal," Tsakalotos said. "It's a great relief that we're now talking about the specifics."

Dijsselbloem said a decision on the debt front could come as early as the Eurogroup's next meeting on May 24, along with the breakthrough that would unlock the next bailout tranche.

German Finance Minister Wolfgang Schaeuble said he was confident that "we will reach a solution in May." But Finnish Finance Minister Alexander Stubb declared himself only "carefully optimistic that we'll get a result in two weeks."

"What [the creditors] need is the feeling, a reality that Greece is turning page and that the vicious circle of the last few years ... is over," Tsakalotos said. "I am optimistic that we will have an agreement."

Last update: Fri, 24/06/2016 - 08:49
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