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Greece optimistic of deal with lenders, unsettled by German Grexit remarks
February 9, 2017 / 6:59 PM / 8 months ago

Greece optimistic of deal with lenders, unsettled by German Grexit remarks

BRUSSELS (Reuters) - Greece is optimistic its international lenders will next week approve reforms required under its bailout, a minister said on Thursday, but criticised Germany for appearing to say the country might have to quit the euro zone.

A Greek national flag flutters as the moon rises in Athens, Greece February 9, 2017. REUTERS/Alkis Konstantinidis

Without euro zone finance ministers, who meet on Feb. 20, signing off on the completion of agreed reforms, there can be no further disbursements of loans and Greece would run out of money to service its debt in July.

Getting an agreement after Feb. 20 would be more difficult due to elections in the Netherlands, France and Germany between March and September.

Reflecting market concerns, 2-year Greek bond yields rose on Thursday to around 10.09 percent GR2YT=RR, their highest level since June last year.

“I am optimistic that we could have such an agreement before the Eurogroup on Feb. 20,” Greek Alternative Foreign Minister for EU affairs George Katrougalos told reporters in Brussels.

“We want the package of the political agreement to have also the necessary measures for debt to be considered sustainable. The package must have both of these dimensions,” he said.

The sustainability of Greek debt, now at around 180 percent of GDP, is crucial for the International Monetary Fund to join the latest Greek bailout, now shouldered only by the euro zone.

The IMF has been pressing euro zone governments to grant Athens substantial debt relief through lengthening and reprofiling loan maturities and grace periods.

But Germany is against granting such relief now, saying it might be considered, if necessary, after the bailout ends in mid-2018.

Germany wants Greece to reach a primary budget surplus of 3.5 percent of gross domestic product next year and keep it at that level for 10 years, arguing that if it did so, no debt relief would be necessary.

ASKING THE IMPOSSIBLE

Katrougalos said demanding any country maintain such a surplus for 10 years was “asking the impossible”.

“(German Finance Minister Wolfgang) Schaeuble has a strategy of a much smaller euro zone,” Katrougalos said.

“He has suggested Grexit in 2012, in 2015, he is not saying it loud and clear now, but it is clear in our understanding that Mr. Schaeuble’s idea is Grexit. It is highly irresponsible not only for the people of Greece but for Europe.”

On Wednesday, Schaeuble told German broadcaster ARD that “the pressure on Greece to undertake reforms must be maintained so that it becomes competitive, otherwise they can’t remain in the currency area”.

The head of the liberal Free Democrats (FDP), a potential government junior partner after this year’s election, said on Thursday that Greece needed a debt write off, but could only get it if it left the euro zone.

The IMF believes that asking Greece to maintain a 3.5 percent surplus over a decade is unrealistic and doubts that Athens can even reach it next year without additional steps.

Euro zone officials said the IMF was pushing for Greece to pass contingency measures now worth 2.5 to 3 percent of GDP that would kick in automatically if Athens misses its primary surplus targets in 2017 and 2018.

There is some support for such “pre-legislating” of reforms among euro zone institutions, although they tend to want to reduce the size of the steps as much as possible to make them more politically palatable, one euro zone official said.

Katrougalos said that if it were not for the IMF, which wants Greece to make bolder pension changes and reform its income tax model, euro zone lenders would already have signed off on their review of Greek reforms.

“We are trying to forge a package that would be a decent compromise,” Katrougalos said. “This package, in order to be decent, cannot contain irrational demands like those by the IMF.”

He said the IMF’s stance on Greece was also likely to be influenced by the views of the new U.S. administration, since the United States is a key shareholder in the IMF.

Reporting By Jan Strupczewski; Editing by Julia Fioretti and Robin Pomeroy

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