Government mulls three-stage strategy

The government sees three stages in its negotiating strategy in view of its key contracts and consultations with the country?s European partners in the next two weeks, according to sources, while the ultimate goal is for Greece to obtain a two-year extension to the timetable for bringing down its deficit below 3 percent of GDP and seek an additional funding package for the extra period.

Finance Minister Yannis Stournaras will probably accompany Prime Minister Antonis Samaras in his meetings with French President Francois Hollande in Paris and German Chancellor Angela Merkel in Berlin.

The three-stage plan provides for:

I) The presentation of a credible package for saving 11.5 billion euros over the next two years. The list of measures for the savings is reportedly almost complete. Ministers will hold intensive meetings over the next few days in order to finalize the package.

II) Approval of the disbursement of the next bailout installment of 31 billion euros. Barring any upsets regarding the package, the issue will be discussed at a September 14 Eurogroup meeting. Approval primarily depends on a positive report by the troika of international creditors the International Monetary Fund, European Central Bank and European Commission. Stournaras is expected to argue that a positive response by Europe toward the package should put an end to speculation of a Greek exit from the eurozone and improve the investment climate in the local economy.

III) The two-year extension to the fiscal stabilization program. Sources say the government has drawn up a scenario for the development of the deficit and GDP if the extension is granted, aiming to show that the plan is realistic and will lead to better results. For instance, the scenario calculates the deficit at 1.5 percent instead of 3 percent if the extension were not granted. In any case, Finance Ministry officials believe that if the extension is granted, growth prospects and the viability of debt will improve and Greece will then be able to discuss the provision of more loans that may be required on better terms.

Separately, talk is proliferating both at home and abroad that an extension of the fiscal adjustment program will be accompanied by a new haircut to Greek debt, which is now overwhelmingly held by the official sector, particularly the ECB and national central banks.