Europe News

Greece Drops Demand to Ease Bailout Terms

Kerin Hope in Athens, Financial Times

Greece’s new government has dropped a plan to seek softer terms for its second bailout following warnings that it would be rejected by international lenders.

The Parthenon in Greece
Scott E. Barbour | Getty Images

Yannis Stournaras, finance minister, said the governing coalition would have to accelerate reforms before asking for modifications in a 174 billion euro ($215.4 billion)  program agreed in February with the European Union (EU) and the International Monetary Fund (IMF).

“The program is off-track and we can’t ask for anything from our creditors before we get it back on course,” Mr Stournaras told the Financial Times. “There is light at the end of the tunnel but it is a long tunnel,” he added.

Greece’s change of tack came as EU and IMF officials visiting Athens this week echoed a statement by Christine Lagarde, the IMF managing director, in a television interview that she was “not in negotiations or re-negotiations mood” on the Greek bailout.

The three coalition partners – the conservatives and two left-of-center parties – all pledged during recent election campaigns that Greece would seek a one-or two-year extension of the program to ease the impact of almost five years of recession, with unemployment now above 21 percent.

Yet Antonis Samaras, the center-right prime minister, avoided any mention of a timetable change during his first meeting on Thursday since taking office with officials from the so-called troika – the EU, IMF and European Central Bank – according to people with knowledge of the discussions.

“The prime minister stressed his commitment to accelerating structural reforms, especially privatisation, in order to turn the economy around and start creating jobs,” one such person said.

“It went well, there was a good atmosphere,” another aide said. An IMF official said: “We don’t have any comment on the talks at this point.”

Greek officials had been apprehensive about the meeting given previous stormy sessions between Mr Samaras and the troika over the conservative leader’s opposition to the first Greek bailout in 2010 and his initial reluctance earlier this year to provide a letter backing the second program.

The troika made clear that even though economic arguments could perhaps be made for extending the program, Greece would then need extra bailout funding, which euro zone member states could refuse to provide given the country’s lack of progress to date.

Greece has missed deadlines for key structural reforms – including an overhaul of the tax administration aimed at reducing high annual levels of tax evasion, estimated at about 5 percent of national output – because of two general elections in the past two months. This year’s budget is already off-track despite improvements in controlling spending, as revenues shrank amid a collection slowdown during the election campaign and a deeper-than-forecast recession.

“The improvements are welcome but the overall picture is misleading,” said a finance ministry official, pointing out high levels of arrears owed to suppliers and a 25 percent cut in the public investment budget in the first quarter.

Following this week’s fact-finding mission by the EU and IMF, Greece will hold detailed negotiations at the end of this month to update the bailout program. Athens will come under pressure to reach a deal by early August or risk further delays in disbursement of a 4.2 billion euro loan tranche due last month, which was held back until a viable government was formed. :