Greece lenders move to patch up differences

Euro zone lenders and the International Monetary Fund have agreed to put aside differences and present a united front at a meeting with Greece in the latest bailout impasse, a step towards agreeing what Athens must do next. The news was enough to bring investors back into the Greek bond market, but whether Athens will go along with the demands is far from clear. The government is under public pressure not to accept any more austerity.

Euro zone officials said yesterday the lenders would ask Greece to take Ä1.8 billion worth of new reforms by 2018 and another Ä1.8 billion after then. The measures will be focused on broadening the tax base and on pension cutbacks. In Athens, a source said this amounted to 1 percent of the gross domestic product now and again after 2018. Putting forward a united front would put aside the differences held by the two sets of lenders about the size of the primary surplus - which excludes debt payments - Greece should reach in 2018 and then maintain. The euro zone and IMF have also differed over what kind of debt relief Greece needs.

The differences have hindered efforts to unlock further funding for Greece under its latest bailout program. This has driven yields on Greek 2-year bonds above 10 percent, although they dropped 120 basis points to 8.8 percent after news of the lenders’ pact. “There is agreement to present a united front to the Greeks,” a senior euro zone official said. “What comes out of it, we will see.” Another source familiar with the agreement said the lenders reckoned that Greece still needed to complete between three-quarters to a half of so-called prior actions before it can have the 6.1 billion euros due from the latest instalment of aid.

Battered Greeks

Greece has consistently ruled out further cuts to pensions, which have been cut 11 times since the onset of the crisis in 2010. The country has only just emerged from a multi-year recession brought on by the debt crisis and the austerity demanded in exchange for three bailouts. Greece’s unemployment rate is 23 percent and while year-on-year economic growth was 1.8 percent last year’s third quarter, it fell at a rate of more than 10 percent earlier in the decade.

The first signs of how far apart the sides remain may come later on Friday when Greek Finance Minister Euclid Tsakalotos meets the chairman of euro zone finance ministers and representatives of lenders’ institutions to discuss the size of Greece’s primary surplus. Jeroen Dijsselbloem, the Eurogroup chairman, sought to play down anxieties that the debt crisis was about to blow up again. — Reuters