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28/09/2016

Greece agrees bailout deal, averts default

Euro & Finance

Greece agrees bailout deal, averts default

Greek pensioners demonstrate against proposals

Reuters

Greece and its creditors reached an agreement on the substance for a multi-billion bailout deal to avert an August 20 default.

“An agreement has been reached. Some minor details are being discussed right now,” Reuters quoted the official as saying. An agreement should keep the country in the eurozone and avert bankruptcy.

Greece has reportedly agreed the function of a new independent privatisation fund, and how non-performing bank loans will be administered, the official said. Greek finance minster Euclid Tsakalotos said “two or three small details” were still pending in bailout negotiations.

A government source told state agency ANA that Athens had committed to a primary deficit of 0.25% of output in 2015, and a surplus in 2016, meaning that no new fiscal measures will be necessary until then, the source said.

In 2016 the primary surplus — the balance not including debt service — will be 0.5%, followed by 1.75% in 2017 and 3.5% in 2018, the source said.

There was no immediate detail forthcoming from the government on other sticking points with the creditors, including how to deal with some 90 billion euros in bad loans burdening banks.

Greece needs to reach an agreement on its third bailout by August 20, when it must repay €3.4 billion to the European Central Bank.

Tsakalotos had earlier urged “optimism that there will be a deal soon” after taking a break from marathon talks with EU-IMF negotiators late Monday to brief Prime Minster Alexis Tsipras.

“We have a discussion… that is going quite well,” Tsakalotos said after the briefing.

“There are issues (the creditors) want to discuss again and again, but I think there should be optimism that there will be a deal soon… I don’t know if it will be tomorrow morning, but soon, it will be soon,” he said.

The talks between Tsakalotos, Economy Minister Giorgos Stathakis, and the ECB, the International Monetary Fund and the European Stability Mechanism aim to finalise the list of new reforms to be required of the Greek government in exchange for a lifeline of up to €86 billion.

But Germany may stand in the way of a full disbursement of the third bailout, which comes on top of two earlier rescue packages totalling 240 billion euros.

Appearing to throw cold water on the positive comments from both sides, German government spokesman Steffen Seibert told reporters: “The principle ‘thoroughness over speed’ applies here in particular.”

Berlin favours a stopgap solution such as the short-term EU bridging loan of seven billion euros that enabled Greece to meet debt payments to the IMF and ECB in June and July.

German lawmaker Ralph Brinkhaus, a top official of Chancellor Angela Merkel’s CDU party, said earlier Monday that such a solution would be “better than a bad agreement”.

On the back of expectations of an imminent agreement, the Athens stock exchange on Monday jumped 2.06 percent, its third day of gains.

Snap elections

Greece and its creditors are yet to announce a consensus on other issues, including raising a solidarity tax on large incomes and VAT (sales) taxes on private studies, petrol for farmers and beef.

Any decision affecting farmers — an influential group in Greece — carries political risk and Tsipras last week promised to extract as many concessions as possible from the creditors.

On Monday, the prime minister pledged to cut lawmaker tax breaks and ministers’ salaries in a “symbolic” move to appease Greek society.

“When the issue of scrapping tax breaks for farmers falls on the negotiating table, we cannot pretend not to care about our own tax breaks,” Tsipras said.

The Greek parliament may vote on the accord on Thursday, after which eurozone finance ministers could be asked to approve it on Friday.

Tsipras meanwhile is under pressure from many in his radical left Syriza party who say the new accord will pile further austerity on a weakened economy and goes against the party’s campaign pledges.

But with his popularity among Greeks still high, Tsipras has warned the dissidents of early elections in the autumn if they continue to resist the measures.

Former energy minister Panagiotis Lafazanis, who is opposed to the new bailout agreement, has dismissed it as “a negotiating fiasco” and said Tsipras could not “avoid the outcry by resorting guiltily and hurriedly to elections”.

Iskra, a website of the Lafazanis-led Left Platform, the anti-euro group inside Syriza, on Saturday raised the prospect of snap elections as soon as the first half of September.

Quoting anonymous government sources, the website said the plan was to rush the bailout accord through parliament and then immediately call for snap elections in order to “purge” MPs who oppose the new deal.

However, the government spokeswoman insisted Monday that “there are no electoral thoughts”.

“The election talk cultivated in recent days is neither useful nor does it correspond to reality,” spokeswoman Olga Gerovasili said in a statement, adding that the government was focused on concluding a deal and then negotiating debt relief with its creditors.

Background

When creditors agreed in July to negotiate a deal aimed at keeping it afloat and in the euro zone, Greece committed to implementing major reforms, such as scrapping early retirement, by the end of October. Lenders want, for example, an increase in the retirement age to 67 from the nominal 62 that falls significantly depending on the number of years worked and family status.

Technical teams also discussed tax, justice and corruption issues and about setting up a new Greek privatisation fund and about bad loans.