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Greek bailout monitors hold emergency summit

Stefan Wagstyl, Peter Spiegel and Claire Jones
German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras following talks at the Chancellery in Berlin March 23, 2015.
Hannibal Hanschke | Reuters

German chancellor Angela Merkel on Monday night hosted an emergency summit in Berlin over the Greek crisis to thrash out differences between the debt-laden country's bailout monitors and to accelerate efforts to reach a deal with Athens.

Christine Lagarde, the managing director of the International Monetary Fund, and Mario Draghi, head of the European Central Bank, arrived secretly in Berlin on Monday to join France's President François Hollande and European Commission president Jean-Claude Juncker, who were already in Berlin for a pre-arranged meeting with the German chancellor.

The hastily called gathering came amid mounting uncertainty about Greece's capacity to keep paying its bills and tensions between the creditor organisations which are under intense pressure to release a desperately needed €7.2 billion so that Greece can avoid a possible default and a rapid exit from the eurozone.

The long negotiations have seen differences emerging between the bailout monitors, and this summit was called to try to settle matters. The IMF has been holding to a tough line, out of respect for its own lending rules and regard for pressure from countries in other parts of the world, which say Athens has already enjoyed very favorable treatment.

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The European Commission has argued for more generous terms for Athens because it sets a high priority on keeping the eurozone intact — a key symbol of EU unity. The ECB, too, wants to keep the common currency together but is also afraid of damaging its credibility by overextending its role as a central bank.

According to a senior official from one of Greece's bailout monitors, the Berlin talks were focused on a technical paper prepared by the commission which all sides are to use in an attempt to find trade-offs acceptable to all creditors.

Officials insisted that if a compromise had been reached in Berlin, it would not be used as a "take it or leave it" ultimatum for Athens, but rather an outline to be presented to Alexis Tsipras, the Greek prime minister, for a "quick reaction."

The official said there were no new concessions to Athens in the commission paper. Rather, it was intended to spell out the core principles creditors need to conclude a deal. Yanis Varoufakis, the Greek finance minister, has long argued that Athens accepts 70 per cent of the existing bailout program, and creditors are hoping any compromise reached in Berlin could serve as the 70 per cent Mr Varoufakis and Mr Tsipras can accept.

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Officials cautioned that the final creditor position may need to be fleshed out in the coming days, but their intention would be to present it to Athens this week.

The talks ended at about 11.30 Berlin time, with officials giving no details. A German government spokesman only said that Ms Merkel, Mr Hollande, Mr Juncker, and Ms Lagarde agreed that the talks over Greece had to be intensified. The expectation is that any agreement that they have reached will be put confidentially first to Greek prime minister Alexis Tsipras to avoid giving any impression of giving him an ultimatum.

The German government spokesman said: "The participants in the talks were in close contact in recent days and want this to remain the case in the coming days — both among themselves and of course with the Greek government."

Athens faces a critical month, with €1.6 billion due for repayment to the IMF in June. The Berlin meeting follows months of talks between the radical Syriza-led Greek government, which is trying to renegotiate the country's loan terms, and the bailout monitors — the commission, the ECB and the IMF.

While Athens has periodically claimed that a deal is in sight, the creditors have insisted that there has been little progress in months of talks, with Wolfgang Schäuble, Germany's finance minister, refusing to rule out a default and Ms Lagarde last week saying that Greece's exit from the eurozone was "a potential".

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The two sides remain far apart on how hard Athens should squeeze public finances. The new government has rejected the current arrangement with the creditors which involved a target primary surplus — the excess of government revenues over spending (before debt financing costs) — of 4.5 per cent of gross domestic product. Athens wants a figure closer to 1 per cent. The creditors may be willing to see a reduction, but not of this scale.

Greece and its creditors are also divided on key issues such as the creditors' demands for cuts in the costly Greek pensions program, public sector payroll reductions and labor market reforms.

Within the eurozone, most finance ministers have supported Mr Schäuble in maintaining a tough line on Athens. At the margin, France's Michel Sapin has been a bit more flexible than his German counterpart. Ms Merkel, Europe's most powerful leader, has largely kept her own counsel. She shares Mr Schäuble's commitment to fiscal prudence but sets a high store on European unity at a time when Europe faces serious threats such as the Ukraine crisis and upheaval in the Middle East.

If she is now pressing for compromise, it is likely that it is the eurozone that will have to provide new financial concessions, not the IMF. And the probable channel will not be the ECB but the ESM, the eurozone rescue fund.

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According to an official briefed on the talks, even if creditors agree to allow Athens to lower their primary budget surplus this year to 1 per cent of GDP, they will still have to take significant new steps since, under current forecasts, Greece is headed for a deficit.

They also must decide on a medium-term surplus target. Although it is unlikely to be as high as the 4.5 per cent of GDP demanded in the current program, it could be around 3.5 per cent — significantly higher than levels sought by Athens.

Because time for an agreement on a new bailout to deal with nearly €7 billion in debts owed in July and August is no longer available, creditors are also discussing a "solution that also covers the summer", the official said.