Greece needs to strike a deal with its creditors by the end of the month to stay afloat, its government said yesterday, as investors ditched Greek bonds in a sign of growing concern about possible bankruptcy.
Despite its precarious position, Athens said it would not abandon its “red lines” in talks with the International Monetary Fund and eurozone partners. These include a debt restructuring, a lower target for the primary surplus to take in more than it spends apart from debt interest payments, and a pledge to make no further cuts to pensions or wages.
“We are not putting red lines because we have a fetish about these red lines,” said Greek government spokesman Gabriel Sakellaridis. “We think they are necessary elements of a deal so that we don’t once again have the problems of the past.”
But Germany’s central bank said the Greek government needed to honour past reform pledges to stave off insolvency.
“A sustainable solution is not possible without substantial reform in Greece,” the Bundesbank said.
Fearing the worst, investors sold off Greece’s debt, with two-year bond yields rising 289 basis points to 23.99% – the largest daily raise in more than a month. Ten-year yields rose 76 bps to 11.54%. Nevertheless, Athens’ main stock index closed up 1.6%, reversing an earlier fall of 2%.
Sakellaridis said public sector salaries and pensions would be paid this month, but made clear that cash was running out, with the state owing the International Monetary Fund some €1.5bn next month.
“There should be a solution in May so we can resolve our liquidity issues,” he told a news conference.
Greece has been in talks with its creditors over the past four months about the release of some €7.2bn in aid, and there is a growing feeling that the end game is at hand.
Greek newspaper To Vima said the European Commission had prepared a possible compromise, proposing that creditors should accept a lower primary surplus target in return for tax reform and a hike in sales taxes.
The report lifted the Athens stock market, but the commission denied any knowledge of such a proposal.
,The EU’s monetary affairs chief said earlieryesterday that the two sides had narrowed their differences and praised Athens for being more constructive on privatisations.
“We have moved closer to common understanding on reforms to be adopted in a number of areas,” European Economic and Monetary Affairs Commissioner Pierre Moscovici told reporters in Berlin, citing Greece’s VAT system, its independent revenue administration and the control of non-performing loans.
But he also saw a rapidly closing window of opportunity: “We have got to conclude before the end of May.”
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