FM: Greece seeks ‘honest compromise’ in standoff

Greece wants to end a standoff with its lenders through ‘honest compromise’, its finance minister said, indicating a willingness to give ground on reform, but he warned that inflexibility on their part could inflame anti-establishment sentiment in Europe.

Finance Minister Euclid Tsakalotos said he anticipated a deal could allow the country’s inclusion in an asset-buying program of the ECB by the spring of 2017, allowing Greece to then test markets with a debt issue later in the year. Greece, which is on its third international bailout since crisis first hit the indebted nation in 2010, is again at odds with lenders on fiscal targets and the scope of reforms required to conclude its latest review on bailout progress.

European Union and International Monetary Fund mission chiefs left Athens last month without a deal on key bailout review issues - including labour and energy reforms. Talks are being held over teleconferences until there is enough progress for direct talks to resume, probably this week.

“The Greek expression is ‘put water into wine’. It’s not an expression I like, because I wouldn’t like my wine watered down, but you know what I mean, to reach an honest compromise,” Tsakalotos said in an interview. Delays in signing off on the bailout review, he argued, could temper economic recovery, an early return to markets, and further deepen a view - already entrenched with the result of referendums in Britain and Italy - that Europe was out of sync with its citizens and was not solving problems.

“I can’t see the logic of returning to uncertainty and delay,” he said adding Greece was meeting its bailout commitments and was ‘constructively engaging’ with creditors. “We don’t go to the institutions with “this is our stance, take it or leave it” we try to respond to their criticisms, when they have objections to the nature of our structural measures, and we are willing to discuss all those issues in good faith.”

Eurozone ministers want Greece to maintain a primary fiscal surplus of 3.5 percent beyond 2018, but have yet to specify how long it should keep this up and have also left open the question of longer-term debt relief. Last week, they offered relief on short-term debt, which will eventually lop about 21 points off the country’s massive debt mountain now standing at just under 180 percent of GDP, but did not outline any mediumor long-term debt relief measures.

Both are important factors for the IMF in weighing up whether it will join the present bailout program worth up to 86 billion euros. Germany, Europe’s paymaster, wants the IMF on board to add credibility to the program. A 3.5 percent surplus retained post-2018, when the bailout program ends, implies a heavier tax burden and more pension cuts for Greeks, who have been squeezed due to a deep recession.

It’s an option ruled out by Greece’s leftist-led government which argues the austerity burden is already crippling for a nation where one in four are unemployed, and many households rely solely on elderly relatives’ pensions to make ends meet. “No government would be able to legislate more measures to be implemented in 2019 and further. There is no economic sense in that and there is no political possibility of them being carried out,” Tsakalotos said. The IMF has said that with the current set of reforms agreed with Athens, Greece will only reach a primary surplus of 1.5 percent of GDP in 2018 and therefore the euro zone should grant it more relief or Athens should implement deeper cost-cutting.

With Greece’s euro zone partners insisting on a 3.5 percent surplus after 2018, Athens has offered a half-way compromise of attaining a 2.5 percent surplus. Tsakalotos said his proposal remained on the table, though he said there had been no in-depth discussion of it at the Eurogroup meeting.

“The IMF - I’m very disappointed with it - the IMF has said on countless occasions that it thinks that in the post-program period we should not have very high surpluses, that Greece cannot have more austerity. “But in all honesty, I didn’t see them giving any fight with the Europeans on reducing the fiscal surplus,” Tsakalotos said.

The pressure, he said, seemed to be applied only on Greece, and not those who were stalling on a better deal on debt, an indirect reference to Germany’s reticence. “What we want is an IMF that fights on two fronts,” he said. “Moving from 3.5 percent to 2.5 percent had “hardly any cost to the man outside Lidl in Hamburg,” Tsakalotos said, referring to the German discount store chain. It would, however, impact sentiment, he said. “Because it will be a more sustainable program, people will believe that there is light at the end of the tunnel and I think that’s very important for both Germany and Greece.”

Tsakalotos said he anticipated the present review could be wrapped up by January, adding the ECB may need further clarity on how Greece’s debt would be handled for the longer term in weighing up its inclusion in the asset-buying QE program. The ECB has extended the program until the end of 2017. —Reuters