Critical choices loom ahead of Eurogroup, IMF repayment

Greek officials are bracing for a difficult Eurogroup summit in Brussels on Monday after what promises to be a weekend of feverish negotiations with representatives of Greece’s international creditors as European officials increase the pressure on Athens to compromise and avert a default.

Prime Minister Alexis Tsipras has been engaged in a flurry of telephone diplomacy in a bid to drum up political support. Meanwhile prominent officials underlined the risks Greece is facing as its coffers run dry and financial obligations loom, notably a repayment of some 750 million euros to the International Monetary Fund on Tuesday.

Greek officials have expressed the government’s intention to pay the IMF but according to sources some are in favor of not paying if the outcome of Monday’s Eurogroup is not satisfactory. Such a move would lead to Greece being declared bankrupt within a month with capital controls likely to be imposed on Greek banks much sooner than that to avert a bank run.

European officials suggested that Greece should be cautious. “Experience in other parts of the world has shown that a country can suddenly slide into bankruptcy,” German Finance Minister Wolfgang Schaeuble was quoted as telling Frankfurter Allgemeine Zeitung. Other European officials made less dramatic statements, with European Economic and Monetary Affairs Commissioner Pierre Moscovici stressing that reforms are not progressing quickly enough and Eurogroup President Jeroen Dijsselbloem saying Monday’s Eurogroup “won’t be decisive.”

Although a decision that will unlock loan money is not expected on Monday, at the very least Athens is hoping for a statement of support that will allow the European Central Bank to provide some liquidity relief, or at least not turn the screws further.

Finance Minister Yanis Varoufakis will represent Greece at the Eurogroup but is to be flanked by Deputy Prime Minister Yiannis Dragasakis or Alternate Foreign Minister Euclid Tsakalotos, who is the new negotiations “coordinator,” or possibly both.

Talks at the technical level continued in Brussels on Saturday with three key sticking points: pension and labor reforms and the level of Greece’s primary surplus, which will determine the extent of economic measures that Athens must take. According to sources, creditors put Greece’s primary surplus for this year at 2 percent of gross domestic product, at least 1 percent above Athens’s estimate. Talks were also said to focus on possible tax increases, particularly likely plans for a flat value-added tax rate.

Although Greek officials insist they have made significant concessions, and Tsipras has called on Europe to show “political will” opposite Athens, it appears that creditors want to see signs of concrete progress – and legislation – before they issue a statement of support, much less unlock funds.

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