Greece and its euro-area partners are stepping up talks in a bid to break an impasse over bailout aid as early as next week, even as the country’s government sent conflicting signals over its willingness to agree on long- stalled reforms.
With Greece facing a cash crunch as early as next week, both sides in a meeting of euro-area officials Wednesday agreed to pursue intensive negotiations beginning on Thursday with the target of a preliminary deal by Sunday, according to two people with knowledge of the talks. The aim would be for finance ministers to sign off on the accord by their next scheduled meeting on May 11, the officials said, asking not to be named because the talks are private.
A key factor in the potential breakthrough may be the decision by Prime Minister Alexis Tsipras to intervene and play a major role in the negotiations to help the process along. That gave the signal that his government may at last be willing to do what’s needed to unlock the stalled bailout.
“There seems to be movement in translating the bullet points into action,” Austrian Finance Minister Hans Joerg Schelling said in an interview in Vienna Wednesday ahead of the euro-area talks. Stressing the importance of a May 11 meeting of euro-region finance ministers, Schellling said “there is a clear recognition that we have to have enough on the 11th to be able to keep talking.”
An agreement could still stumble at opposition within Tsipras’s government. In a sign of the obstacles yet to overcome for a deal, Greece’s finance ministry said in a statement Wednesday that the government “retains red lines” in the negotiations, which include a sales tax on islands, pension and labor market reforms and asset sales.
Greek Finance Minister Yanis Varoufakis was told by his counterparts last week that time was running out to fulfill promises to reform his economy in return for aid payments. Tsipras has since curtailed Varoufakis’s role in day-to-day negotiations, reshuffling his staff.
“The government has seemingly responded and is redesigning the negotiating team,” Schelling said. “I hope that’s a good signal that we can come to an agreement.”
With Greece running out of time to reach a deal in time for debt payments next month, Moody’s Investors Service Wednesday downgraded ratings on the country’s government bonds further into junk, to Caa2 from Caa1, one level below Standard & Poor’s, while keeping a negative outlook. Moody’s lowered ratings on bank deposit ceilings even further citing heightened risk of a deposit freeze if outflows continued and slashed economic growth forecast for Greece to 0.5 percent from 1.2 percent.
Earlier Wednesday, the European Central Bank raised the amount of emergency liquidity available to Greek banks to 76.9 billion euros while signaling that access to such funds may become more difficult as bailout talks remain deadlocked. The ECB is studying measures to rein in Emergency Liquidity Assistance provided to the country’s banks to limit risks, a move that could prompt capital controls. Staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing, and the Governing Council may discuss the issue at its May 6 meeting.
Weekly ELA injections reflect deposit outflows, as liquidity buffers are kept at about 3 billion euros to give the Bank of Greece and the ECB time to react in an emergency. Household and business deposits fell 1.9 billion euros in March to 138.6 billion euros, the lowest level since January 2005, according to Bank of Greece data released Wednesday.
March’s deposit outflows bring the four-month drop to almost 26 billion euros, or about 16 percent of the total, amid growing alarm among savers over the country’s place in the euro area. While the rate of decline has slowed, outflows probably continued into April, as reflected by successive ELA-ceiling increases.
Greek bank shares fell 3.1 percent Wednesday, while the benchmark Athens Stock Exchanged ended 1 percent lower. Bonds also fell, with yields on Greek notes due in 2017 rising 183 basis points to 22.18 percent.
Schelling said that while a lot of time has been lost by the Greek government since its euro-area counterparts agreed in February to extend its 2012 bailout program until the end of June, there are now signs of movement.
“There are apparently details about how they intend to deal with privatization, legislation in preparation that credibly and bindingly sets out how to implement the required measures,” he said. “That’s what we are hearing unofficially at the moment.”
The new negotiating team, which includes Deputy Foreign Minister Euclid Tsakalotos, met in Athens Monday and discussed a bill that may include changes to the country’s taxation system and public administration. While the bill with the proposed measures is ready, it won’t be submitted to parliament unless it’s part of a deal with creditors, the senior Greek official said on Wednesday.
German officials said chances of a deal may be rising. “We now have a new work structure in Athens” that “can lead to an acceleration of the talks as a whole,” German Finance Ministry spokesman Martin Jaeger told reporters Wednesday, referring to the reduced role for Varoufakis.
Tsipras said he may need a referendum to garner public support for a deal that would go against the government’s campaign pledges. Yet, a poll conducted after his remarks and broadcast on Mega TV on Wednesday showed that sixty-two percent of Greeks oppose a referendum and 78 percent want the government to reach a deal with its creditors.
A referendum could backfire, Schelling said.
“I see it like this: the government should govern,” he said. “If it were to go in the wrong direction, then the situation will be even more difficult.”