International

Merkel sets strict terms for Greek aid, Juncker flags EU cash

University students take part in an anti-austerity rally in Athens, on Friday, March, 20, 2015. (AP Photo/Petros Giannakouris)

BRUSSELS: German Chancellor Angela Merkel, the eurozone’s main paymaster, said Friday Greece would only receive fresh funds to ease a cash crunch once its creditors approve a comprehensive list of reforms it has promised to present soon.

However, she signaled some flexibility on what reforms Athens would have to make and European Commission President Jean-Claude Juncker offered leftist Greek Prime Minister Alexis Tsipras a sweetener by saying 2 billion euros from the European Union budget were available to ease the humanitarian impact of five years of austerity measures.

Both leaders were speaking after Tsipras promised eurozone leaders, in overnight talks on the sidelines of an EU summit, that his government would move swiftly to present a full economic reform package in a drive to avert bankruptcy.

After two months of growing frustration on both sides since Tsipras was elected with a mandate to end austerity, he held three hours of talks with the leaders of Germany, France and the main EU institutions to try to break an impasse that risks sending Athens stumbling out of the eurozone.

A joint statement by the EU institutions spoke of a “spirit of mutual trust” and Tsipras said he now felt more optimistic, but it remained uncertain whether he and Merkel were talking about the same reforms and how far Greece would have to start implementing them before it receives any new cash.

The risk of a continued standoff, exactly a month after Greece secured a last-gasp four-month extension of an EU/IMF bailout, was highlighted by comments from Merkel and Tsipras.

“The agreement of Feb. 20 is still valid in its entirety. Every paragraph of the agreement counts,” Merkel told German journalists who questioned whether she was now offering cash for promises.

Tsipras appeared to differ. “It is clear that Greece is not obliged to implement recessionary measures,” he told reporters. “Greece will submit its own structural reforms, which it will implement.”

Merkel, facing strengthening resistance at home to continued lending to keep an erratic partner in the euro, insisted that only the completion of approved measures would satisfy the creditors, including the Eurogroup of eurozone finance ministers.

“The Greek government has the possibility of replacing individual reforms outstanding from December 10 with other reforms, if these ... have the same effect. The institutions and then the Eurogroup must decide whether they do have the same effect,” she said, noting that Ireland had made such changes with EU backing.

Tsipras told a news conference he and Merkel had agreed to forget the previous Greek government’s commitments, notably on the level of a primary budget surplus, which excludes debt payments, expected this year.

He said he had no deadline for submitting the comprehensive list of reforms and insisted Greece faced no short-term liquidity problem, contradicting comments by EU officials that Athens could run out of money in mid-April.

Tsipras will make a much-anticipated first official visit to Berlin Monday. Asked whether Greek demands for reparations for the World War Two Nazi occupation would be on the agenda, Merkel said Berlin had addressed the issue in the past but she was keen to discuss bilateral German assistance programs.

EU officials said that if Greece came up with a convincing plan, the Eurogroup could meet as early as next week to release at least some funds.

Merkel too said Greece could get some payment sooner if it fulfilled the requirements faster.

Greece is pressing in particular to receive 1.9 billion euros in profits that the European Central Bank made last year on its holdings of Greek government bonds.

The Greek Finance Ministry said it would respond in a “constructive spirit” to a list of requirements on reforms being drawn up by a team of technical experts from the creditors – a contrast to an atmosphere of mutual mistrust that marked encounters with EU officials in Athens this week.

Finance Minister Yanis Varoufakis, whose comments and behavior have offended many of Greece’s partners, especially Germany, joined the call for immediate implementation of the Feb. 20 extension agreement.

“First, we should work toward ending the toxic ‘blame game’ and the moralizing finger-pointing, which benefit only the enemies of Europe,” he said in a blog post Friday.

The meeting involved Tsipras, Merkel, Juncker, summit chairman Donald Tusk, Eurogroup chairman Jeroen Dijsselbloem, ECB President Mario Draghi and French President Francois Hollande.

In a brief joint statement, Juncker, Tusk and Dijsselbloem said: “The Greek authorities will have the ownership of the reforms and will present a full list of specific reforms in the next days.”

Following the talks, the main Greek stock index rose 3.2 percent. Two-year Greek government bond yields fell 89 basis points to 23.85 percent, while 10-year yields were down 18 bps at 12.1 percent. But two-year yields were still much higher than before, having doubled in a month and risen over 3 percentage points Thursday.

EU officials said the talks were conducted in a business-like manner – a contrast to a confrontation between Greek and German ministers in recent weeks. That had raised speculation that some creditor states might prefer Greece to quit the euro.

Athens has been kept from bankruptcy by two bailouts since the global financial crisis, but remains vulnerable to a sudden financial shock. Thursday, Greek banks reported the largest deposit withdrawals in a month, a sign savers are worried about the outlook for the country’s finances and institutions.

During the bailout program the Greek economy has shrunk by 25 percent, partly due to austerity measures imposed by the lenders. It risks running out of cash without more aid or permission to issue more short-term debt.

A Greek official said Athens had enough cash to pay a final 350 million euro installment of a loan repayment to the International Monetary Fund Friday.

 
A version of this article appeared in the print edition of The Daily Star on March 21, 2015, on page 5.

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