Athens prepares a compromise before Eurogroup

Plan entails 'bridge program' to September, possible use of loan tranche

Government sources Monday gave a preview of the proposal planned for Wednesday’s crucial Eurogroup summit, foreseeing a bridge program linking to a “new deal” with creditors that would come into force in September and changes to the economic policy mix pursued by previous governments.

The government’s proposal is in four parts, according to a Finance Ministry source. The first foresees that 30 percent of the memorandum be scrapped and replaced with 10 new reforms which Greek officials are to agree with the Organization for Economic Cooperation and Development. The second sub-proposal entails Greece’s primary surplus target of 3 percent of GDP for this year being reduced to 1.49 percent. Thirdly, authorities want to reduce Greek debt through a swap plan. And finally, Greece’s “humanitarian crisis” is to be eased using measures set out in the government’s policy program which was unveiled by Prime Minister Alexis Tsipras on Sunday night.

In a speech in Parliament Monday, Finance Minister Yanis Varoufakis said the government did not want “to tear up the memorandum nor to enforce it faithfully.”

As regards financing, ministry sources said Greece wants to secure the 1.9 billion euros in profits from the Greek bonds held by the Eurosystem and will seek to issue T-bills, some 8 billion euros above the 15-billion-euro limit which Greece has exceeded. Authorities are also keen to raise the threshold for emergency liquidity assistance from the European Central Bank.

A further portion of a pending 7.2-billion-euro loan tranche could also be drawn if required, the sources said, essentially reversing the previous insistence by the government that it does not want the money.

Another proposal foresees some 11 billion euros in leftover funding from the recapitalization of Greek banks being used to help Greek lenders deal with nonperforming loans.

Sources said the Greek delegation was optimistic that a compromise would be reached and that the team would be going into the talks with an “open mind” but with certain “red lines” which include the refusal to accept further austerity and the insistence on large primary surplus targets.

German Chancellor Angela Merkel held her cards close to her chest Monday, saying she would wait for Greece to make its proposal.

“What counts is what Greece will put on the table,” she told a joint press conference with US President Barack Obama in Washington. “I look forward to hearing Angela’s assessment of how Europe and the IMF can work with the new Greek government to find a way that returns Greece to sustainable growth within the eurozone,” Obama said.

Meanwhile Tsipras, speaking from Vienna where he met Austrian Chancellor Werner Faymann, said he could only foresee a deadlock in Greece’s talks with creditors “for political reasons” which was widely seen as a jab at Berlin. Faymann, for his part, stressed that “the eurozone must remain united in a difficult situation” following renewed speculation of a possible Greek exit from the currency bloc.