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FT, June 13 2015
Greece defies creditors’ demands for decisions on reform
Peter Spiegel in Brussels and Michael Hunter in London
ATHENS, GREECE - JUNE 11: Supporters of the Greek Communist party's
labor union PAME take part in an anti-austerity rally at Syntagma square
on June 11, 2015 in Athens, Greece. Greek unions have held protests in
Athens and other cities in Greece against the prospect of new austerity
cuts demanded by the country's international creditors.
Athens insisted on Friday that it was still negotiating with its
creditors to unlock €7.2bn in desperately needed bailout aid, but showed
little sign of acquiescing to their demands for concessions on economic
reform.
A day after the International Monetary Fund pulled its officials out of
talks and EU leaders said it was decision time for Greece, Athens said
it had submitted a new plan that included debt restructuring but
excluded cuts to pensions, elements rejected by bailout monitors earlier
this week.
According to a Greek government official, the plan should also include
“low” budget surplus targets this year and next; creditors have sought
surpluses of 1 per cent of economic output this year and 2 per cent in
2016. Those levels are significantly below the current bailout
programme’s targets, but higher than Athens has sought.
Negotiations between Athens and its creditors have ground to a halt just
days before a critical meeting of eurozone finance ministers next week
that officials believe may be the final chance for a deal to be struck
to avoid a Greek default.
The IMF on Thursday said that it had pulled out its negotiating team
because long-standing differences between the two sides were not being
discussed. Senior EU officials signalled they were no longer willing to
compromise.
The Greek government plan on Friday brushed aside the latest warnings
and blamed the IMF pull-out on “an internal dispute” among bailout monitors.
Athens said it would be sending top officials to Brussels on Saturday to
present its counter-proposals.
But its renewed demand for debt restructuring is likely to be met with
dismissal from creditors. Although some eurozone officials believe a
promise of future debt relief could be part of a final deal, they have
repeatedly insisted a writedown would not be part of the current
negotiations over the €7.2bn aid tranche.
In addition, the IMF has continued to insist that pension cuts totalling
1 per cent of gross domestic output be included in any deal, arguing
that Greece’s pension system is unsustainable. While Athens has resisted
such cuts, citing already-impoverished pensioners, creditors have asked
Greek officials to find cuts elsewhere if it wants to avoid such pension
reductions for the poor.
Greece’s creditors have become increasingly exasperated at its
negotiating strategy in recent days. During a meeting of eurozone
finance ministry officials in Bratislava, several governments made clear
they no longer supported a follow-on bailout once the current Greek
programme ends this month, although the current rescue could conceivably
be extended by several months.
The warnings from creditors that negotiations are at an end sent
financial stocks on the Athens exchange tumbling on Friday while
investors also dumped Greek government debt.
The euro edged back up after earlier pressure, rising by 0.2 per cent to
$1.12, shrugging off comments by Angela Merkel, the German chancellor,
who made a rare intervention in the currency markets. Ms Merkel said a
single currency that was “too strong” was making it harder for eurozone
countries such as Spain and Ireland to reform.
Friday’s sharp declines took shares in Greece’s biggest banks down
across the board. Bank of Piraeus fell 13.4 per cent and National Bank
of Greece, one of the biggest private holders of Greek government debt,
fell 11 per cent.
The Athens General index was down 5.9 per cent in mid-afternoon trading.
Yields on Greek sovereign bonds rose as investors flew from the debt,
with benchmark 10-year debt costs rising by 4.7 per cent to yield 11.3
per cent.
Athens took the IMF to task for its decision to pull out of the talks,
insisting that its withdrawal was due as much to conflict with Greece’s
other two bailout monitors — the European Central Bank and the European
Commission — as with Greece.
Although the IMF has clashed with the commission, particularly on its
insistence for pension cuts, those differences were largely set aside
last week after the heads of the two institutions — Christine Lagarde at
the IMF and Jean-Claude Juncker at the commission — hammered out a
common proposal at an emergency summit in Berlin at the invite of Ms Merkel.
The strident rejection of the compromise plan by Alexis Tsipras, the
Greek prime minister, has changed sentiment in several eurozone
capitals, particularly Berlin, where there is mounting political
pressure to present the plan as a “take it or leave it” offer.
German officials believe a Greek default could be contained, but there
was growing talk among market commentators on Friday about potential
contagion in other eurozone nations.
Brenda Kelly, head analyst at London Capital Group, said: “It once again
seems that a Greek default is practically inevitable. The next 24 to 72
hours will be crucial as we enter potentially uncharted territory for
the eurozone.”
Among share indices the Europe-wide FTSE Eurofirst 300 remained
relatively sanguine, slipping 0.7 per cent to 1,546.16.
Additional reporting by Jeremy Grant and Roger Blitz in London
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