Cyprus Mail

Greece steps up diplomacy to avert cash crunch

Greek Finance Minister Yanis Varoufakis arrives at the European Commission headquarters ahead of a meeting with European Commissioner for Economic and Financial Affairs Pierre Moscovici in Brussels May 5

By Lefteris Papadimas and Jan Strupczewski

Greece stepped up diplomacy with euro zone partners on Tuesday to try to avert a potentially catastrophic funding crunch this month, when it must make a big debt repayment to the IMF as cash reserves dry up.

Ministers were travelling to Frankfurt, Brussels and Paris to plead for a loosening of the financial stranglehold on Athens after leftist Prime Minister Alexis Tsipras spoke by telephone to German Chancellor Angela Merkel, Europe’s pre-eminent leader.

“They discussed the course of the negotiations in Brussels and exchanged views on the issues of Greece’s deal with its lenders,” a Greek government official said of the call on Monday night, without elaborating.

Intensive talks continued with the International Monetary Fund, European Commission and European Central Bank on a cash-for-reform deal but there was no sign of a breakthrough on key differences over pensions, labour reform and the minimum wage.

In a goodwill gesture, a senior privatisation official said Athens was ready to finalise a 1.2 billion euro deal with German operator Fraport to run regional airports and to reopen bidding for a majority stake in the port of Piraeus.

European Economics Commissioner Pierre Moscovici said the aim was for euro zone finance ministers to be able to officially register “strong progress” in the negotiations when they meet next Monday but did not suggest a deal was possible by then.

The political uncertainty prompted the Commission to slash its forecast for 2015 Greek economic growth to 0.5 percent from 2.5 percent just three months ago. It also cut its estimate for Greece’s primary budget surplus before debt service.

“The fact that negotiations are still going on without having been concluded after more than 3-1/2 months, all that has an impact on expectations for growth and public finances in Greece,” Moscovici told a news conference.

Greek Deputy Prime Minister Yannis Dragasakis was due to meet ECB chief Mario Draghi in Frankfurt to urge the central bank to increase a liquidity lifeline for Greek banks and permit them to buy more short-term treasury bills, easing the government’s immediate funding crunch.

Greece has to repay 970 million euros to the IMF by May 12 and has commandeered cash reserves from municipalities and government bodies to scrape together the funds.

ECB policymakers will hold their weekly review of emergency lending assistance (ELA) to Greek banks on Wednesday amid pressure from hardliners led by Germany’s Bundesbank to tighten the collateral terms, ECB sources said.

Pointing to recent credit rating downgrades of Greece and its banks, the hawks want the ECB to increase the “haircut” on Greek securities that banks present as collateral for funding.

But an ECB source said he did not expect the council to make a dramatic change that would put Greek banks in immediate difficulty while negotiations are continuing.

Investors shed Greek bonds and stocks on Tuesday after the Financial Times reported that the IMF’s European chief Poul Thomsen had threatened to cut a funding lifeline to Greece unless its European partners agree to a debt write-off.

A source briefed on the IMF’s position said Thomsen had not explicitly made such a threat or called for a debt write-off when he met euro zone finance ministers in Riga on April 24, but had highlighted Greece’s deteriorating debt sustainability.

“The IMF of course did not make such a comment,” German Finance Minister Wolfgang Schaeuble echoed on Tuesday, adding that Thomsen had said things “had become more difficult”.

Greek Finance Minister Yanis Varoufakis, sidelined by Tsipras from the negotiations after alienating his euro zone colleagues, met his French counterpart, Michel Sapin, in Paris and was due to see Moscovici later in Brussels.

Moscovici stressed the Commission’s goal was to keep Greece in the euro zone and avert what he called an “accident”.

While Germany and its allies have pointed to calm in bond markets to suggest that a Greek default or exit from the euro zone would not cause a wider financial meltdown, as it might have done in 2012, other EU countries are more concerned.

Italian Foreign Minister Paolo Gentiloni warned against belittling the risks of a possible “Grexit”.

“Italy’s government considers it short-sighted and dangerous to underestimate the Greek crisis,” Gentiloni told reporters, adding that the idea of a Greek exit from the euro zone could not be taken lightly.

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