Greece will likely miss a deadline for a deal with creditors by the end of the week as the two sides have made little progress during talks in recent days, four international officials familiar with the matter said.
Greece is nowhere close to an agreement with the European Commission and International Monetary Fund over the terms of a continued bailout for the country, said the people, who asked not to be identified discussing private negotiations. German Chancellor Angela Merkel and French President Francois Hollande last week set a target to reach a deal by the end of May.
The European Central Bank Wednesday left the level of emergency cash available to Greek banks unchanged from a week ago at 80.2 billion euros ($87.6 billion), said two people familiar with the matter. Greek lenders still have a liquidity buffer of about 3 billion euros, one of the people said. ECB and Bank of Greece spokesmen declined to comment.
Finance Minister Yanis Varoufakis said Tuesday that he’s now aiming for an agreement by June 5, when the first of almost 1.6 billion euros in IMF payments due next month must be made. Greek officials are meeting Wednesday in Brussels with creditors to try and secure a deal, and the country’s standoff with lenders is likely to be a major topic on the sidelines of a Group of Seven gathering for finance ministers and central bank governors in Germany.
An exit from the euro “would be a full-scale disaster for Greece, including the collapse of its banks, severe devaluation of its new currency, poverty and hyperinflation,” said Nicholas Economides, an economics professor at New York University’s Stern School of Business.
US Treasury Secretary Jacob J. Lew said Wednesday in London that he’ll urge his G-7 counterparts to find a constructive and pragmatic outcome in the Greece negotiations. Lew said he’s worried about an “accident” with Greece, and that as deadlines pass the risks of such an occurrence rise.
The ECB did not raise the emergency funding available to Greek banks because deposit outflows in the last week were negligible, two people familiar with the issue said. The banks have lost access to capital markets, forcing them to rely on the emergency assistance to stay afloat.
Greek shares rose Wednesday, with the benchmark Athens Stock Exchange gaining 1.5 percent at 1:26 p.m. local time. The gauge has fallen about 31 percent in the past 12 months, making it one of the worst performing major equity indexes tracked by Bloomberg. Yields on two-year notes climbed for a second day, gaining 22 basis points to 25.12 percent.
As the negotiations drag on, Greece has seen liquidity evaporate, pushing the economy back into recession. Record deposit withdrawals and the state’s increasing difficulty in meeting debt payments have renewed doubts about the country’s ability to stay in the euro. Key sticking points in the talks remain in areas such as budget targets, sales-tax rates, pension and labor market rules, Prime Minister Alexis Tsipras’s spokesman Gabriel Sakellaridis said Monday, adding that a deal could still be reached by the end of the month.
Even though no aid disbursements have been made to Greece since last summer, the country has managed to meet external payments by slowing down spending, building up arrears to suppliers and vendors, encouraging citizens to pay overdue taxes, and seizing the cash reserves of regional governments, hospitals, universities, and other public entities. [Bloomberg]