Greece and its foreign lenders have largely bridged differences over a potential fiscal gap this year, removing a key sticking point holding up talks to release more bailout funds, two sources directly involved in the talks said on Tuesday.
The latest review of Greece’s progress under its European Union/International Monetary Fund bailout has dragged on since September in large part due to wrangling over how Athens would plug a gap in this year’s budget, which had been estimated at 1 billion euros.
However, that is no longer the main issue in talks thanks to surprisingly strong data on a primary surplus for 2013, two sources involved in the negotiations said.
A third official cautioned that it was too early to say the issue had been fully resolved since complete 2013 data is not yet available. Athens expects to report a primary surplus – i.e, not counting debt – of 1 billion euros in 2013, but the data will be officially confirmed only in April.
The two sides still need to agree on the terms of bank stress tests, structural reforms and the impact of a court ruling reversing some wage cuts before 4.9 billion euros in rescue loans are disbursed, the sources said.
“The picture we have is that the issue of the fiscal gap for 2014 is nearly resolved,” a Greek finance ministry official said, speaking on condition of anonymity.
A second official confirmed the assessment, adding that the discussions had now moved to assessing a potential fiscal gap for 2015.
Greek officials are hoping a deal with the EU/IMF – talks are now in their fifth month – will be clinched by the end of February, allowing funds to be disbursed in early March.
A ruling by a top Greek court that may reverse troika-mandated wage cuts imposed in 2012 on police and the armed forces is complicating the talks, the sources said, as it could blow a hole of up to half a billion euros in its finances.
The troika is also pressing Athens to adopt a so-called tool kit of more than 300 reforms proposed by the Organization for Economic Cooperation and Development, aimed at making the economy more competitive and lowering consumer prices.
In a departure from the usual practice of lengthy discussions in Athens to seal a deal, senior officials from the trio of EU, IMF and European Central Bank inspectors to Athens are not expected to return to Greece until a deal has already been agreed in principle, three sources close to the talks said.
Greece, which teetered close to bankruptcy in 2012, has no pressing funding needs until May, when bond payments of 9.3 billion euros are due. It has already been bailed out twice with 240 billion euros from the EU and IMF since 2010 and is expected to need additional funds and debt relief before it can get on its feet again.
Athens is likely to get a third bailout from the eurozone of 10-20 billion euros to keep it going through 2014 and 2015, but there will be no reduction on the principal of the debt Athens already owes to the euro zone, eurozone officials said.
German magazine Der Spiegel on Saturday cited a German finance ministry a document which outlined the possibility of a haircut on the money that Greece borrowed from the eurozone or a package of new loans of 10-20 billion euros.
“The amount is quite close,” one eurozone policymaker involved in the talks on Greece said. “There are different estimates, that’s why such a large spread of between 10 to 20 billion. It’s for 2014-15,” the official said.
The IMF, which has contributed to the previous two bailouts, has said Greece was short of 4.4 billion euros in financing in 2014 and 6.5 billion in 2015.
After the first two bailouts, most of the Greek debt is to eurozone governments, so a write-off of some of the debt would be a relief and make the country’s debt more sustainable.
But this option has never been discussed because several countries, including Finland, the Netherlands or Slovakia would not agree.
“A haircut (cutting back) on the principal… remains completely out of the question,” a second eurozone official involved in discussions on Greece said.
Officials said that while there might be unofficial discussions of a third bailout for Athens in the coming months, official talks could only start after European Parliament elections in May, because the issue was politically sensitive.
“Any new package will be officially discussed only after European Parliament elections,” the first official said.
Eurozone ministers may, however, issue a political declaration before the May 22 elections that they would continue to bankroll Greece, leaving more concrete discussions for later, officials said.