(From L) German Chancellor Angela Merkel, French President Francois Hollande, and Greek Prime Minister Alexis Tsipras confer prior to the start of a summit of Eurozone heads of state in Brussels on July 12, 2015. The EU cancelled a full 28-nation summit to decide whether Greece stays in the European single currency as a divided eurozone struggled to reach a reform-for-bailout deal. AFP PHOTO / JOHN MACDOUGALL
Angela Merkel and Alexis Tsipras © AFP

Greece and its creditors are close to reaching an outline deal this week on the debt-laden country’s €86bn rescue programme, amid signs of growing German isolation over its tough stance towards Athens.

Significant concessions by Alexis Tsipras and his negotiators in the past month have encouraged other hawkish eurozone members such as Finland to break with Berlin, which wants to hold out longer to squeeze more reforms from Athens.

Even previously sceptical EU diplomats now say that a full agreement could be reached by the August 20 deadline, when Athens must make a €3.2bn debt repayment to the European Central Bank.

The cautious optimism contrasts sharply with the acrimony at last month’s eurozone summit, which came close to ushering Greece out of the currency bloc before agreeing to negotiate a deal. The main elements of the proposed deal include spending cuts, administrative reform and privatisations. Remaining sticking points between Athens and its creditors include details of a €50bn privatisation plan and proposals for raising the planned budget surplus, excluding debt interest, to 3.5 per cent of gross domestic product in 2018 from zero this year.

Officials in Brussels said an early deal was “ambitious but feasible”. But they emphasised that while this was the “preferable” way forward, the option of a €5bn bridging loan to give negotiators more time, championed by Berlin, was still on the table.

As often in the past, Greek officials were the most positive about the likelihood of a breakthrough, expressing confidence that an outline deal could come by Tuesday and be approved by the Athens parliament later this week, despite political divisions and public anger over the terms.

Eurogroup finance ministers would then meet on Friday to approve the deal, leaving time next week for national parliaments in Germany, and the other creditor countries which must vote on the plan, to do so before August 20. One Greek official said: ”If there aren’t any last-minute obstacles raised by our partners, we can wrap up a deal this week.”

However, Germany, the biggest creditor, was late last week still holding out for more reforms from Athens, arguing that a two- or three-week bridging loan was better than hurriedly striking an inadequate three-year deal. Jens Spahn, deputy finance minister, tweeted on Friday: “It is better done thoroughly than hastily.”

An EU official said that even if Wolfgang Schäuble, Berlin’s hawkish finance minister, dug in his heels, chancellor Angela Merkel would not want Berlin isolated.

However, to sell the deal to the German parliament, the chancellor will want to have the IMF on board. Fund negotiators have signalled that they will back the proposed deal, but the IMF board has been warned by the institution’s staff that Greece no longer qualifies for support, because of high debt levels and its poor reforms record. A final IMF decision on the programme may come only late this year and could depend on the EU creditors granting Athens more relief on Greece’s €320bn foreign debt.

Meanwhile, in Greece, Mr Tsipras faces hostility to unpopular measures including raising the retirement age, increasing taxes for farmers and putting national assets into an independent privatisation fund.

His Syriza party faces a split with legislators from a hardline anti-bailout Left Platform opposing a new programme, leaving Mr Tsipras and his allies dependent on pro-EU opposition parties. Syriza officials are already talking openly about a general election, perhaps in October.

Greece hopes to receive €24bn as soon as the rescue is approved, although the IMF is understood to be pushing for a lower figure. Some €12bn would pay down debt, €10bn would recapitalise Greek banks and the remainder would reduce debts to state suppliers amounting to €5.3bn.

Additional reporting by Anne-Sylvaine Chassany


Copyright The Financial Times Limited 2023. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article