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Seeking compromise deal, Greece warns it might skip IMF payment

Wednesday, June 3, 2015 - 23:14

[ATHENS] Greece's international creditors signalled on Wednesday they were ready to compromise to avert a debt default even as Athens warned it might skip an IMF loan repayment due this week.

Prime Minister Alexis Tsipras visits Brussels later on Wednesday to see senior European officials, where he is expected to hear the terms of the plan drawn up this week at a meeting of top leaders, including German Chancellor Angela Merkel.

With time running out, and looking to draw a line under months of acrimonious negotiations, the creditors have effectively come up with a take-it-or-leave-it offer.

However, Mr Tsipras has produced a plan of his own and said he intended to discuss this document in Brussels, calling on eurozone partners to show some "realism" and urging a deal that would let Greece escape from "economic asphyxiation".

German Finance Minister Wolfgang Schaeuble said an initial look at Greece's reform suggestions indicated that talks aimed at securing an aid-for-reforms deal will take time. "I have no information that anything decisive has changed in terms of substance," he said at an event in Berlin.

Looking for a compromise, the creditors will suggest that Greece should post a budget surplus before interest payments of one per cent of gross domestic product this year and two per cent in 2016, against 3 per cent and 4.5 per cent under the terms of the current plan, sources familiar with the proposal said.

By contrast, the sources said the Greek government, elected in January pledging to end years of bitter austerity, had suggested a primary surplus of 0.8 per cent this year and 1.5 per cent next year.

Athens also offered to curb early retirements to save on pension payouts in line with previous proposals, but it was not clear if it had offered any new concessions demanded by lenders on labour and pension reform.

It was also not clear if the major creditors - euro zone governments, the International Monetary Fund and European Central Bank - had shown any flexibility in these areas.

Sounding more upbeat and conciliatory than Germany, France suggested that an agreement was within reach. "We are a few days or hours away from a possible deal on Greece," French President Francois Hollande told a conference organised by the Paris-based OECD think tank.

"Asking too much of Greece could stifle growth. But asking too little would have consequences for the eurozone as a whole."

Locked out of international bond markets, Greece has not received any cash from its trio of creditors since last August and its coffers are all but empty.

It is due to pay back the IMF 300 million euros of loans on June 5, but a spokesman for the ruling Syriza party said it would miss this deadline if there was no prospect of an accord with the creditors.

"If there is no prospect of a deal by Friday or Monday, I don't know by when exactly, we will not pay," Nikos Filis told Mega TV on Wednesday.

Greece has three other repayments, totalling some 1.23 billion euros, due to the IMF in June after the one on Friday.

Tsipras is due to meet European Commission President Jean-Claude Juncker and Eurogroup President Jeroen Dijsselbloem in Brussels, as well as representatives from the ECB and IMF.

"We do not expect any final outcome tonight. This is a first discussion, not a concluding one," Commission spokesman Margaritis Schinas told a regular media briefing in Brussels.

The Greek prime minister, who faces a backlash in his party if he is forced to retreat on his anti-austerity drive, said he would push his government's proposal at the Brussels meeting.

"Today, more than ever before, it is necessary that the institutions, and mainly the political leadership of Europe adopt the realism that the Greek side has been showing for the past three months," he told Greek television.

Greece owes a total of about 320 billion euros, of which about 65 per cent to eurozone governments and the IMF, and about 8.7 per cent to the European Central Bank.

Many eurozone capitals appear unwilling to offer Athens too much slack, fearing it would undermine fiscal rigour across the bloc and boost radicals in their own countries clamouring for an end to years of austerity triggered by the financial crisis.

If Greece skips the IMF payment, the immediate consequences are hard to predict. However, officials have warned for months that a default could ultimately push Greece out of the single European currency and unleash possible turmoil on world markets.

White House economic adviser, Jason Furman, said a Greek default was a "potential accident" in waiting. "It would be a mistake to think it would be just contained to Greece," he told the OECD conference, saying policy-makers had already been caught wrong-footed in recent years by contagion from the sub-prime debt crisis.

The months of talks have stumbled on Greece's insistence on reversing planned pension cuts, restoring collective bargaining rights and minimum wage levels. The two sides are also haggling over value-added-tax reforms, fiscal targets for this year and 2016 and the size of the civil service.

With cash running out and the economy seizing up as the government halts payments to suppliers and curtails investment, Mr Tsipras faces intense pressure to capitulate soon to prevent an outright economic collapse.

His supporters have suggested that rather than go back on his campaign pledges, he might prefer to call a new election or a referendum to let the Greek people decide on the way forward.

Dutch Prime Minister Mark Rutte said an exit of Greece from the eurozone could still not be excluded and that bridging the gap between Athens and its creditors remained difficult.

"I do believe they are working very hard to get somewhere, but at the same time they (the Greeks) have made so many promises in the elections and afterwards in parliament ... that it's difficult to bridge the gap," he told Reuters in Paris.

REUTERS