ECONOMY

Greece confronts euro-area skepticism as end of bailout looms

Greece’s euro-area creditors voiced skepticism that a breakthrough on financing Europe’s most indebted state was within reach, suggesting that any deal with Prime Minister Alexis Tsipras’s government will go to the wire.

Weekend discussions aimed at identifying common ground failed to make sufficient progress to bridge the divide between the Greek government and its international creditors, German Finance Minister Wolfgang Schaeuble said in an interview with Deutschlandradio.

“From what I’ve heard about the technical discussions at the weekend, I’m very skeptical,” said Schaeuble, whose country is the biggest contributor to Greece’s 240 billion-euro ($274 billion) twin bailouts and the chief advocate of economic reforms in return for aid. “But we’ll get a report today and then we’ll see.”

Greek stocks and bonds dropped as Schaeuble’s comments were echoed by colleagues from Malta to France, signaling Monday’s meeting in Brussels of euro-area finance chiefs will struggle to reach an accord. Failure to strike a deal by February 28, when the current rescue expires, risks leaving Greece adrift without funds to keep banks afloat and to pay salaries, triggering a chain reaction that could put the country’s euro membership in jeopardy.

Showdown Later

“The stakes are high, but I doubt tonight is much more than theatrics,” Daniel Gros, director of the Centre for European Policy Studies in Brussels, said in an e-mail. “The real showdown will come much later.”

The yield on Greece’s three-year government bond surged 121 basis points to 17.1 percent as of 12:15 p.m. in Athens, while the Athens Stock Exchange Index dropped 3.4 percent to 863.65. That’s a reversal from Friday, when stocks and bonds rose as officials on both sides signaled some willingness to compromise after an initial meeting yielded little progress.

Talks took place on Saturday between officials from Greece’s finance and foreign ministries and technical delegations from the European Commission, the European Central Bank and the International Monetary Fund. Rather than negotiations toward a deal, the focus was on identifying areas of agreement and fields where both sides diverge, according to Greek and EU officials.

‘Touch and Go’

Finance Minister Yanis Varoufakis aims to secure a six- month bridge package that gives Greece the time and financial space to negotiate a post-bailout settlement. Creditors say that Tsipras’s government must abide by the agreements struck by previous Greek administrations.

Hopes are not high for Monday’s meeting and the Greeks have very different ideas to their partners, according to an EU official who asked not to named because the talks are private.

Malta’s Finance Minister Edward Scicluna described the meeting as “touch-and-go,” saying he thought the situation in Greece was “even worse than expected.”

“Partners are being asked for impossible favors with offensive statements to boot,” he said in an interview in Brussels Monday before finance chiefs met. A deal by February 28, “depends entirely on Greece,” he said.

Austrian Finance Minister Hans Joerg Schelling said the Greek proposals “so far aren’t concrete enough” and are “still lacking some numbers,” according to an interview on German ZDF television.

French Finance Minister Michel Sapin said there’s a “chance” of an accord on Monday, though when pressed he declined to say whether one is probable or not. “The objective is to reach an agreement,” he said on France 2 television.

Tsipras Confident

Tsipras spoke with European Commission President Jean- Claude Juncker late last night, as Juncker made a last-ditch effort to get a deal, according to an EU official. In a weekend interview with Germany’s Stern magazine, Tsipras was quoted as saying he anticipated “difficult negotiations” ahead, though he remained “full of confidence.”

Tsipras’s Syriza party was elected January 25 on a platform of ending austerity, a partial debt writedown and no more audits by the so-called troika comprising the commission, the ECB and the IMF. While the Greek government has no natural allies around the table on Monday, polls show domestic support remains strong. More than 20,000 people demonstrated in central Athens late Sunday in support of its stance.

“Europe is good at finding face-saving compromises in late-night sessions,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Our call is that Tsipras will get real and strike a deal soon, probably with a de facto extension of the current program in a slightly amended form and with a less intrusive follow-up support program thereafter. But the risk of accidental Grexit caused by a Greek refusal to accept reality remains high.”

[Bloomberg]