Greece, creditors seek breakthrough as clock runs down

Greece and its lenders enter a decisive weekend of negotiations in a bid to agree on a package of cuts and reforms that would unlock another 7.2 billion euros and allow Athens to keep meeting its debt repayments.

Talks at the Brussels Group level continued Friday as Washington issued a fresh warning to all sides about the dangers of no consensus being reached soon. Speaking after the G7 meeting in Dresden, Germany, US Treasury Secretary Jack Lew warned that the chances of an “accident” are growing.

“If you look from January until now, too much time has been spent unproductively,” he said. “I think waiting until the day or two before whatever the deadline is, is just a way of courting an accident.”

Lew also emphasized that although Greece would have to take some tough decisions in the coming days, its lenders will also need to compromise so there can be an accord. “All parties need to move,” said the American official. “There needs to be some flexibility on the part of the institutions.”

The Greek government was warned on Thursday that it only had a few days to reach a deal otherwise there would not be enough time for eurozone parliaments to agree to the disbursal of new loans before the end of the month, when the current program extension ends.

Greece has to pay just under 300 million euros to the International Monetary Fund on June 5 and the government has sent mixed messages over whether it will be in a position to meet this commitment. If the payment is made, then Athens has to find another 1.3 billion euros during the course of next month to meet its obligations to the Washington-based organization. This has put extra pressure on Prime Minister Alexis Tsipras to ensure talks conclude successfully as quickly as possible.

Speaking to Vima FM Friday, Finance Minister Yanis Varoufakis said that there had been a breakthrough in talks with regard how to calculate the impact of changes in value-added tax. He suggested the proposals that have been made by Athens would lead to an extra 900 million euros in revenues, which is thought to be short of the target lenders are aiming for. Varoufakis did not reveal what three VAT rates Greece is proposing but it is believed that they are 6.5 percent, 10 percent and 21 percent.

Beyond VAT, there are still differences to be resolved on issues such as pension reform and labor market regulations. Creditors are also thought to be pressing the government to proceed with the process of product market liberalization that the previous coalition engaged in haltingly.

The gaps on such issues has led to Greece’s lenders being skeptical about the possibility of an agreement in the next few days. “The positive reports out of Athens don’t fully reflect the state of talks,” said German Finance Minister Wolfgang Schaeuble after the G7 meeting.

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