Race to reach agreement in Greek bailout talks

Eurogroup chairman Jeroen Dijsselbloem postponed a planned eurogroup meeting on Greece that had been provisionally scheduled for Thursday, as bailout negotiators failed to make sufficient progress in Athens.

While no new provisional date was set for a new meeting, sources said euro zone finance ministers could meet next week.

Discussions between Greek government officials and negotiators have been taking place since Monday as negotiators seek a breakthrough in talks on Greece’s €86 billion bailout programme.

Negotiators from both sides are racing to secure agreement on the terms of the first bailout review, as well as an extra package of contingency measures to be implemented if Greece misses its primary surplus targets for 2018.

Euro zone sources said that “virtually all issues” pertaining to the first bailout review, including pension reform, income tax thresholds and the status of non-performing loans, had now been resolved.

Target

However, the announcement by the eurogroup and IMF last Friday that an extra €3.6 billion in cuts should be prepared by Greece if it fails to meet a primary surplus target of 3.5 per cent by 2018 has complicated discussions.

Greek finance minister Euclid Tsakalotos said such contingency measures are not permissible under Greek law, forcing negotiators to look for a legal compromise on the format the contingency package would take. IMF managing director Christine Lagarde had said that the extra measures would "have to be legislated upfront, have to be credible, and have to be triggered with a degree of automaticity" without room for interpretation.

The proposal for an extra set of contingency measures emerged as a way of resolving ongoing differences between the IMF and Greece’s European lenders about the terms of the Greek bailout. While the Commission believes the agreed measures implemented by Greece will lead to a primary surplus of 3.5 per cent by 2018, the IMF believes a surplus of 1.5 per cent is likely.

The proposal for a contingency package equating to 2 per cent of GDP is part of an effort to bridge that gap.

Following months of negotiations, Greece is close to agreeing a package of cuts equating to €5.4 billion to unlock the next funding disbursement under its €86 billion bailout programme. This is in addition to the estimated €3.6 billion in new contingency cuts.

Euro zone finance ministers are also expected to discuss debt relief for Greece at their next meeting. While the IMF has been pushing for significant debt relief, eurogroup chairman Jeroen Dijsselbloem said on Friday that t writedown was not on offer.