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Greece and its creditors inch closer to debt deal

(London Post)    After Greece adopted a new set of reforms, Eurozone finance ministers have closed in on a deal to unlock vital cash for Athens. Debt relief was discussed, setting the stage for a showdown between the IMF and Germany.

Meeting in Brussels on Monday, the 19 ministers made progress towards signing off on the long-delayed first review of Greece’s 86-billion-euro ($98 billion) bailout, with a senior EU official saying that an agreement over how to proceed with the country’s third rescue package in five years would be ready “in the coming days.”

Completing the review is necessary for Athens to receive a tranche of around 5.4 billion euros it badly needs to service its debts to the European Central Bank (ECB) and the International Monetary Fund (IMF) in July, as well as to pay for everyday government services.

Following the meeting of the finance ministers, termed the Eurogroup, its chief Jeroen Dijsselbloem told journalists that the Greek parliament’s approval of fresh reforms in a tense vote late Sunday “paves the way for successful completion of the first review.” He said earlier that he hoped to reach a deal on debt relief at the group’s May 24 meeting.

Valdis Dombrovskis, the EU Commission’s vice-president in charge of the euro, said in a message on Twitter that a staff level agreement was expected to be “finalized in coming days, including the contingency mechanism.”

Dombrovskis also tweeted that diplomats would discuss measures to provide debt relief for Greece – a key demand of the IMF, though opposed by Germany – and report back to the ministers at their May 24 meeting.

A deal reached on Monday was elusive amid divisions between the eurozone ministers and the International Monetary Fund (IMF) on the exent of reform measures the Greek government must take and its need for debt relief.

European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters ahead of the meeting that a deal must address three issues.

“Reforms – we are there. The contingency mechanism – we are almost there. And the debt issue – we are starting the discussion,” he said.

Greek parliament passes new austerity

Unpopular reforms

The meeting followed days of protests in Greece, where tens of thousands took to the streets to reject a new series of pension cuts and tax hikes.

Despite the protests, Greek lawmakers adopted a package of reform measures earlier on Monday, thanks to the ruling far-left Syriza party’s slim majority in the 300-seat parliament. All the opposition parties voted against the bill.

The reforms aim to ensure that Greece will meet an agreed-upon 3.5-percent budget surplus, before interest payments, by 2018. Athens needs this “primary surplus” to regain access to bond markets and make its debt load sustainable.

Lingering mistrust of Athens

Also on the agenda in Brussels was an IMF demand that extra reform measures be set to go into effect in case Athens misses its 2018 spending targets – a measure fiercely opposed by the Tsipras government.

These so-called “contingency measures” are a key requirement of the IMF, as the emergency lender is skeptical Athens will meet the targets. IMF chief Christine Lagarde has repeatedly warned that there were “significant gaps” in Greece’s reform offers, while also accusing the EU of demanding unrealistic targets from Athens.

Instead, the IMF strongly supports debt relief for Greece, seeing it as a key condition for the hobbled Greek economy to get back on its feet.

Tentative debt relief talks

The IMF wanted the discussions in Brussels to focus on capping annual servicing costs at around 15 percent of gross domestic product (GDP) or less.

German Finance Minister Wolfgang Schäuble has rejected the idea of forgiving further parts of Greece’s debt, claiming the country would not have to service its debt until after 2022, when a 10-year grace period expires.

Officials in Brussels said the Eurogroup started “preliminary only” talks on a potential reprofiling of Greek debt to make future servicing costs manageable. Such reprofiling is not debt forgiveness in itself, but rather includes such things as stretching repayments out over years or tying them to economic performance.

uhe/jtm (AFP, Reuters, dpa)

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