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04/12/2016

Greece talks to abandon bailout fail

Euro & Finance

Greece talks to abandon bailout fail

Palais de la Muette OECD [Andrea/Flickr bit.ly/1zYQVZ6]

Greece and its EU/IMF lenders failed to resolve differences over next year’s budget at talks in Paris, a Greek official said yesterday (26 November), raising doubts about whether Athens can meet a deadline to wrap up its bailout programme.

The two sides have been haggling over a projected budget shortfall next year, which has held up an overall deal on the final bailout review. Athens needs to strike that deal by a 8 December deadline to ensure it makes good on a pledge to quit its €240 billion euro bailout by the end of the year.

>> Read: Greece resumes talks with lenders to exit bailout

The official said there had been no discussion of extending the bailout beyond the end of the year, but also added that no date had been set for the return of EU/IMF inspectors to Athens.

The inspectors failed to return to Athens as expected earlier this month and in a surprise move, the two sides held talks in Paris this week that ended on Wednesday.

“The number one issue is the fiscal gap for 2015,” the Greek finance ministry official told reporters after the talks ended.

The lenders say Athens faces a shortfall of over €2 billion next year unless it waters down a generous state arrears payback plan for austerity-hit Greeks or takes other measures.

Athens says it faces no such shortfall and last week submitted its plans for a near-balanced budget to parliament without approval from the inspectors.

Greece’s government has staked its survival on abandoning the bailout. It is hoping an early exit from the reviled programme will help it win enough support to scrape through a presidential vote in February and avoid early elections. 

Background

After two international bailouts totalling 240 billion euros since 2010, when private investors refused to lend to Athens any more, Greece wanted to switch back to market financing from the start of next year, instead of 2016 as originally planned.

But markets reacted nervously to the plan, worried that Athens would no longer have any financial backup. Greek benchmark 10-year bond yields rose to 8.9% in late October from 5.6% in early September.

Eurozone finance ministers backed a precautionary credit line for Greece on 6 November, which would be needed after the country eventually exits its bailout at the end of the year.

>> Read: Eurozone backs ESM credit line for Greece after bailout exit