ATHENS: Greece and international creditors sought to put final touches to a multibillion euro bailout accord Monday to keep the country financially afloat and meet an important debt repayment to the European Central Bank within days.
Germany set out “strict” conditions for further aid and said it would be sensible to link the size of the first tranche to Greece’s progress in carrying out reforms, a reflection of worry around the eurozone that Athens might not do as promised.
Greek ministers and representatives of European institutions and the International Monetary Fund resumed talks Monday morning after a marathon Sunday session that ended in the predawn hours.
An accord for up to 86 billion euros ($94 billion) in fresh loans to the debt-stricken nation must be in place by Aug. 20, when the repayment to the ECB is due. Greek bond yields fell as hopes grew of a speedy end to talks.
An agreement would mark the end of a painful chapter on bailout talks for Greece, which fought against austerity terms demanded by creditors for much of the year before accepting a deal under the threat of being bounced out of the eurozone.
“From 12 midnight, the two sides started the final stretch, discussing the final stretch – combing through the final text, sentence by sentence, word by word,” a Greek Finance Ministry official said.
Greek officials had earlier said they hoped to conclude negotiations with creditors by early Tuesday at the latest. The European Commission said it anticipated a deal this month.
“A deal is feasible. A deal can be reached in the month of August, preferably before Aug. 20,” European Commission spokeswoman Annika Breidthardt said.
Greek banks could get an initial capital injection soon after a bailout deal is clinched, as much as 10 billion euros, even before the ECB completes a stress test, a eurozone official familiar with the issue said Monday.
The official, who asked not to be named, said a test may not be finished before October but that it was recognized the Greek banks need urgent capital to normalize their operations.
Germany Monday stressed its wish for “quality before speed” in the negotiations, threatening to slow down the process as it pressed for strict conditions to be linked to aid.
Popular misgivings run deep in Germany, the eurozone country that has already contributed most to Greece’s two bailouts since 2010, about funneling yet more money to Athens.
Germany wants a deal that includes an ambitious budget plan, a credible privatization strategy and a sustainable pension reform by Greece, Finance Ministry spokesman Juerg Weissgerber told a regular news conference in Berlin.
“It is sensible – that is our belief – to fix the size of the first payment tranche to the extent of the reforms implemented,” he said. “That means strict conditionality for financial help.”
Weissgerber said Germany was not involved in the negotiations and would need time after any deal to review the results.
“We are ready to do this examination quickly this week if necessary, but quality comes before speed,” he said.
Greek officials have said that they expect the bailout accord to be approved by Greece’s parliament either Wednesday or Thursday and then vetted by the Eurogroup – finance ministers of the eurozone countries – on Aug. 14, paving the way for aid disbursements.
The bailout pact will be voted on in parliament as one bill with two articles – one on the loan agreement and memorandum of understanding and the second on the so-called prior actions that must be completed for aid to be released, another Greek official said. The negotiations began on July 20.
Greek media reported that some of the prior actions included scrapping tax breaks for farmers who now receive subsidized fuel, tighter regulations on individuals owing back taxes to the state, and a gradual increase in a “prepaid” income tax mechanism that asks taxpayers ranging from the self-employed to small businesses to cough up lump tax sums on forecast income.
The two sides have agreed to set a budget surplus target before interest payments of 0 percent this year, and expect the economy to shrink between 2.1 and 2.3 percent, a Greek official told Reuters.
Greece’s economy returned to recession this year, hammered in part by the imposition of capital controls and a three-week shutdown of banks in June-July as the bailout talks dragged out tortuously without resolution.
Industrial output data for June pointed to a 4.5 percent decline from a year earlier, underlining the economic hit from prolonged political turmoil.
EU officials have said the size of the overall bailout has been a sticking point. From the Greek side, Greek sources said a key issue of concern was how to deal with a mountain of non-performing loans in the banking sector, a factor likely to weigh on a potential recapitalization bill for the banks.
Athens wants to set up a “bad bank” to handle this, while creditors want non-performing loans bundled and sold to distressed asset funds. Non-performing loans represented about 35 percent of overall loan portfolios in the first quarter of 2015, a level likely to increase because of the recent imposition of capital controls to stop a run on Greek banks.