EU sends envoy to salvage Greece deal as February deadline looms

EU Commissioner for Economic Affairs Pierre Moscovici - Photographer: Simon Dawson/Bloomberg

Bloomberg —  Greece and its creditors are intensifying efforts to complete a stalled review of the nation’s bailout that would unlock much-needed aid before more than 6 billion euros in obligations come due in July.

EU Commissioner for Economic Affairs Pierre Moscovici will meet with Greek Prime Minister Alexis Tsipras and Finance Minister Euclid Tsakalotos in Athens Wednesday to try to reconcile differences over what reforms are needed to stabilize the country’s economy. European rescue monitors had wanted a deal reached by Feb. 20 when euro-area finance ministers gather in Brussels.

Greece has been at odds with its bailout creditors, who have insisted that Tsipras’s government pass legislation that would trigger further budget cuts if fiscal targets are missed. And while the International Monetary Fund has taken a more severe stance on Greece’s economic projections and what remedies are required to make its debt sustainable, European Union nations including Germany and the Netherlands have deemed the Washington-based fund’s participation necessary.

“It’s crucial that all partners now live up to their commitments so that an overall policy package can be reached as soon as possible,” European Commission Vice President Valdis Dombrovskis told the European Parliament in Strasbourg, France, on Tuesday. “There is no room for complacency.”

Greece’s bailout auditors — the commission, the European Central Bank, the European Stability Mechanism and the IMF — have proposed additional fiscal cuts equal to 2 percent of its gross domestic product, including a lower tax-free threshold and pension ‘reforms’, according to a person familiar with the talks who asked not to be identified. In return, the Greek government will be able to reduce some taxes or social contributions if there is fiscal over-performance.

Athens denies that such a deal is being discussed.

“There is no such proposal,” Greek government spokesman Dimitris Tzanakopoulos told reporters in Athens. “We are negotiating an agreement that doesn’t contain a single euro of austerity measures,” he said, adding that data showing growth for the year proves the economy is performing better than expected and that no more austerity measures are needed.

Greece also beat its 2016 fiscal target, the commission said, achieving a budget surplus before interest of 2.3 percent of gross domestic product, compared with a goal of 0.5 percent. The surplus will widen to 3.7 percent in 2018, in line with targets, provided the government implements the terms of its 86 billion-euro ($91 billion) bailout program, the commission said.

Despite the favourable data, the european landers demand additional austerity, which is certain to strangle any hope of recovery in Greece, just to convince the IMF  to stay on board – otherwise Germany might pull out of the programme.

Athens meanwhile still hopes for a political solution: “A political deal followed by technical implementation in a lesser-profile setting” is the best-case scenario, Eurasia analyst Mujtaba Rahman wrote in a client note on Tuesday. “For a political agreement, Germany and the IMF are going to have to signal a degree of flexibility they have not been willing to show to date.”