World Economy

Renewed bailout talks between Greece and creditors hit snags

Peter Spiegel in Brussels, Tony Barber in Athens and Shawn Donnan in Washington

Talks to agree a new €86bn bailout for Greece ran into trouble on Friday after Athens raised hurdles for negotiators in the Greek capital, forcing them to postpone their arrival amid renewed acrimony.

Alexis Tsipras, the Greek prime minister, agreed last week to "fully normalize" talks with creditors on the ground in Athens after resisting their presence for months — a key demand made by euro zone leaders when they agreed to reopen rescue talks after coming close to pushing Greece out of the euro zone.

But three senior officials from Greece's bailout monitors said Athens had instead demanded restrictions on negotiators, including on whom creditors could meet and what topics were to be discussed in the talks.

Anti-austerity demonstrators hold up a giant Greek flag in front of parliament in Athens, July 22, 2015.
Ronen Zvulun | Reuters

Two of the officials said Greek authorities had also insisted negotiators no longer use the Athens Hilton as their base — a hotel close to central Syntagma Square and a short drive to the finance ministry — instead proposing hotels far from the capital's government quarter.

"It is fundamentally more of the same," said a senior official from one of the bailout monitors,colloquially known as the "troika" after the three institutions originally involved in the talks, the European Commission, European Central Bank and International Monetary Fund. "They don't want to engage with the troika."

Greek officials insistedthe renewed stand-off was only a temporary delay and that talks would resume over the weekend or Monday at the latest. George Stathakis, economy minister, said he was confident the negotiations would be finished by mid-August, when Athens needs the bailout cash to pay off a €3.2bn bond held by the ECB.

Mr Stathakis said Greece and its creditors had already found common ground on many of the main issues,including fiscal targets, stabilizing the banking sector, liberalization of product markets and professions, labor market reforms and privatizations of state assets.

"We have three weeks,and I'm confident that it's enough for the existing agenda," Mr Stathakis told the Financial Times. "We agree in certain areas. In others, there are different views and some distance needs to be covered. But the last European summit gave a framework that indicates which directions to follow, and that's why I think three weeks will be enough."

Still, one creditor official said negotiating teams were "sitting on their suitcases" and had no plans to go to Athens until the logistical issues were resolved.

Adding another potential complication, the Greek government on Friday lodged a formal request with the IMF to begin discussions on a new, third bailout program. The request came after officials at the IMF determined that the current Greek program, which still has about €16.5bn to disburse and was due to expire in March, had become outdated.

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Those negotiations between Athens and the IMF could take months. But the decision to pursue a new IMF program means euro zone leaders may have to open talks on granting Greece significant debt relief much earlier than originally anticipated, since the IMF will not sign on to a new program unless euro zone lenders agree to restructure their bailout loans.

That could lead to political difficulties in Germany, which has fiercely resisted writedowns to levels the IMF has been demanding.

It also means Germany's Bundestag is likely to be forced to sign off on a new euro zone bailout for Greece as soon as next month without the IMF's own component being in place —something German officials have insisted was necessary to win approval from wavering center-right MPs.

According to people briefed on IMF thinking, the current "rough plan" is to begin negotiations on a new IMF program after Greece completes separate negotiations with euro zone creditors. That would mean the new IMF bailout would not be in place until October or November — and could be linked to the completion of a first review of Greece's progress in its euro zone program.

Despite severe downgrades in Greek growth projections by the IMF and other bailout monitors,Mr Stathakis said he believed that the economy could bounce back quickly once anew program was agreed.

"Despite the circumstances of the past six months, and despite the liquidity problems, the recession is relatively small," said Mr Stathakis. "I have a theory that the Greek economy has a strong pro-cyclical tendency. That's why we may return relatively quickly to a positive growth path."

Additional reporting by Kerin Hope in Athens

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