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Greece and Creditors Move Closer To Deal to Preserve Bailout Program -- WSJ

8 Apr 2017 6:32 am
By Nektaria Stamouli 

VALLETTA, Malta -- Greece and its international creditors agreed Friday on the main points of a deal that could keep the country's bailout program going, according to Greek and European Union officials, resolving a monthslong deadlock over fresh austerity measures and possibly clearing the way for talks on debt relief.

Eurozone finance ministers gathering in Malta on Friday approved the return of international bailout supervisors, including the International Monetary Fund, to Athens to settle outstanding details and draft the final agreement.

"We have an agreement on the overarching elements of policy," Eurogroup Chairman Jeroen Dijsselbloem told a news conference after the Eurogroup meeting. "The big blocks have now been sorted out and that should allow us to go to the final stretch."

Athens must reach an accord with creditors to receive help to make around EUR7 billion ($7.5 billion) in debt payments in July.

European lenders, particularly Germany, have insisted that Greece agree to further controls to its public finances before Berlin and the IMF discuss debt relief.

In February, Athens agreed to squeeze public spending again after the current bailout program ends in 2018. But the two sides have argued over when the new austerity measures will take effect, with Athens preferring gradual implementation, which would ease some of the domestic opposition to further squeezes.

Under the deal, Greece will commit to spending cuts, largely through pension reductions, and revenue-raising measures equaling about 1% of gross domestic product in 2019, according to people familiar with the talks. A similar amount in 2020 is set to be raised from a reduction in the threshold for paying personal income tax. The agreement keeps the pressure on Athens to maintain control over public spending by requiring it to bring forward the 2020 remedies by a year if Greece misses its primary surplus target.

The two sides also agreed on a package of growth measures, mostly consisting of tax cuts, that would be implemented if primary budget surplus targets are met.

But Athens and the creditors decided to postpone until next year the contentious issue as to which forecasts -- EU or IMF -- will form the basis to activate the budget tightening.

Greece pledged in mid-2015 to achieve a primary surplus of 3.5% of GDP in 2018 -- before debt payments -- and for an unspecific number of years in the future. However, the IMF believes that Greece's current public finances put it on track for a primary surplus of just 1.5% and has been reluctant to participate in the lending program without further measures to increase the surplus.

According to EU officials, EU statistics, due out in late April, will show Greece achieved a primary surplus close to 4% of GDP in 2016.

The fund has been leery of putting its own credibility on the line by supporting an agreement that it believes doomed to failure. The additional spending cuts and fresh revenues measures agreed are expected to satisfy the IMF.

European creditors, led by Germany, are eager to have the IMF's involvement since they have promised they won't request more money for Greece unless the fund resumes lending to the country.

The accord brings the IMF one step closer to officially joining Greece's program. But in order for this to happen, the European creditors must first commit to substantial debt relief in order to make Greece's loans more sustainable.

The Tsipras government has agreed on a number of labor reforms and the privatization of state assets, including a 40% stake in the country's main power utility Public Power Corporation.

Talks on the bailout were expected to be completed in 2016. The negotiations revived uncertainty in Greece, jeopardizing hopes of an economic recovery after a nine-year slump.

"The situation in Greece isn't improving and that is something we are responsible for. This is taking too long," Mr. Dijsselbloem said.

Prime Minister Alexis Tsipras, who faces elections in 2019, is hoping the new bailout will restore some confidence in the Greek economy. It would also allow the European Central Bank to include Greece in its quantitative-easing program, which could boost investor confidence and restore Greek's access to international bond markets.

Write to Nektaria Stamouli at nektaria.stamouli@wsj.com

(END) Dow Jones Newswires

April 08, 2017 02:32 ET (06:32 GMT)

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