Greece, creditors agree to resume talks on financial reforms

RAF CASERT and PAN PYLAS

BRUSSELS — Greece and its European creditors agreed Monday to resume talks on what reforms the country must make next in order to get the money it needs to avoid bankruptcy and a potential exit from the euro.

They also hinted that they would temper their demands for budget cuts — a welcome thought for austerity-weary Greeks who have seen poverty rise as their economy shrank by a quarter over the past seven years.

Jeroen Dijsselbloem, the top official in the 19-country eurozone, said there was an agreement to have a “shift in emphasis in the policy mix from the austerity side to structural reforms.” At face value, that means less tax rises and spending cuts and deep reforms to the country’s tax system, pensions and labour laws.

Such reforms could help the economy and generate income that the Greek government can use to push for further growth — such as through tax cuts or even spending increases.

“There could be fiscal space for growth-enhancing measures,” he said.

Easing up on austerity was one of the demands of Greece’s left-wing government, which has been losing support according to opinion polls.

It has also been one of the demands of the International Monetary Fund and could help convince it to contribute to the latest Greek bailout program, which was agreed on in July, 2015. The IMF’s involvement was envisioned in that bailout deal, Greece’s third, and Dijsselbloem said Monday’s agreement could help to get it on board.

Greece dominated discussions at the eurozone meeting after mounting concerns that another Greek debt crisis was brewing.

Hopesofabreakthroughthatwould unlock bailout funds imminently were dashed in recent weeks due to disagreements between Greece and its creditors.

In particular, disagreement between the eurozone and the IMF over the sustainability of Greece’s debts and the scale of austerity demanded of Athens stoked worries in the markets. The interest rate on Greece’s two-year bonds, for example, spiked to around 10 per cent.

Greece remains dependent on bailout loans from its partners in the eurozone to pay its debts. It has a payment hump in July with around $7.4 billion of repayments due, and without more bailout cash it would face bankruptcy and a potential exit from the euro — a so-called Grexit, a scenario it has faced repeated over the past seven years.

Dijsselbloem sought to cool expectations that an agreement to disburse funds will be reached soon.

“There is no need for disbursement in March, April or May,” he said “I’m not saying we should use all that time ... but don’t create deadlines where there are none.”

However, Dijsselbloem, who is also the Dutch finance minister, said it would be useful if an agreement on the next stage of the Greek bailout deal is reached sooner rather than later “quite quickly simply for stability reasons and confidence reasons.”

By a variety of economic metrics, including growth and the budget, Greece is performing relatively well —certainlywhencomparedtothelast few years when the economy shrank by a quarter and unemployment and poverty rates spiked higher.

Because of its improved performance, Greece has borrowed less from its bailout fund than originally envisaged in the 2015 rescue, which provided for around $91 billion in loans over a three-year period.