Greek Bailout Proposals Lift Hopes of Deal

By Viktoria Dendrinou And Nektaria Stamouli 

        BRUSSELS--Greece's creditors suggested for the first time that a deal to avert the country's bankruptcy was in sight after an 11th-hour proposal submitted by Athens on Monday made a significant concession on pension cuts.
        Eurozone leaders, who held an emergency summit in Brussels to discuss the latest Greek offer, said that more work was needed to ensure the government's figures were in line with creditors' demands. But the proposal was promising enough, they said, to continue talks in the coming days with the aim of reaching an agreement later this week.
        The new plan was a potential turning point just days before the Greek government needs to secure fresh financing to meet a EUR1.54 billion ($1.75 billion) debt payment due to the International Monetary Fund at the end of the month.
        "The basis of a deal has been assembled today," French President Francois Hollande said after the meeting. European Council President Donald Tusk called the new Greek offer "the first real proposals in many weeks."
        European stocks and bonds surged as the last-ditch proposal lifted hopes of an imminent deal after four months of deadlock and acrimony between Athens and its creditors. Greek shares led the way, as the country's main stock index closed 9% higher. The pan-European Stoxx Europe 600 rose 2.3%, while in the U.S., the S&P 500 climbed 0.6%.
        Greek government bonds also gained sharply, as the country's two-year yield fell five percentage points to 22.9%. The yield on Spain's 10-year bond was down 0.21 percentage point at 2.08% and the comparable Italian yield was 0.18 percentage point lower at 2.11%. (Bond yields fall as prices rise.)
        The two sides still have work to do to bridge remaining differences. A first assessment from the institutions overseeing Greece's bailout--the European Commission, the European Central Bank and the International Monetary Fund--found the new plans to be "broad and comprehensive," said Jeroen Dijsselbloem, the Dutch finance minister who presided over the talks.
        "But they really need to look at the specifics to see whether it adds up in fiscal terms, whether the reforms are comprehensive enough for the economic recovery to take off again," he said.
        German officials echoed the note of caution. Though Chancellor Angela Merkel called the new proposals a good starting point, she warned that "a lot of work still needs to be done and time is very short."
        At a meeting of finance ministers earlier in the day, Germany's Wolfgang Schauble pushed to impose capital controls on the Greek economy to slow the flight of deposits from Greek banks, officials involved in the talks said. Other participants in the meeting countered that such a step would be too drastic now.
        Eurozone finance ministers plan to meet again on Wednesday with the aim of completing a deal; eurozone leaders meet again on Thursday and Friday at a regularly scheduled summit for the entire European Union.
        Greece, meanwhile, is insisting that the governments offer firmer promises of debt relief as part of the deal--a carrot that would help Prime Minister Alexis Tsipras push a deal through Greece's Parliament, where leftist hard-liners are a powerful force.
        The Greek proposal has been described by Greek and European officials as possibly the country's final chance to unlock its bailout program and avoid a potentially catastrophic exit from the eurozone. Negotiations between the creditors and Greece would now continue "with a view of reaching a final agreement later this week," Mr. Dijsselbloem said.
        The two sides have been deadlocked over further austerity measures--particularly reducing pension spending and streamlining and eliminating loopholes to value-added taxes. Lenders say the moves are necessary to produce extra savings of 1% of gross domestic product and put Greece back on the path to economic health.
        But Athens argues they would force the country back into recession. Mr. Tsipras has been deeply reluctant to make any further concessions, aware that it would be difficult to sell to his far-left Syriza party. After Greece and its creditors quarreled at a meeting of finance ministers last week, eurozone officials feared a deal was out of reach anytime soon, raising worries of a potential Greek default.
        The new proposals, formally submitted to creditors Monday morning, foresee new pension savings and revenues worth 1% annually starting next year, three officials familiar with the plan said. That would bring the government in Athens close to the target demanded by its creditors.
        The eurozone portion of Greece's EUR245 billion rescue program runs out at the end of the month. Without a new aid transfer before then--and an extension of the bailout program--the government would be set to default on its June 30 loan repayment to the IMF and might struggle with paying salaries and other government obligations. Further large payments to the IMF and the ECB loom later this summer.
        European leaders said Monday that they would rely on funds left over from Greece's current bailout, around EUR30 billion, to provide financing to Greece, instead of negotiating a new bailout for Athens.
        Fears over Greece's finances have prompted many Greeks to pull their savings from banks in recent weeks, with deposit withdrawals reaching EUR1 billion a day. Many officials expect that, without a deal, the government might soon have to limit cash withdrawals and transfers of euros abroad.
        "The time pressure is our best friend at the moment," said Slovak Finance Minister Peter Kazimir. "We should use the momentum." Ministers said a deal on new funding--if there is one--would have to wait until meetings on Thursday and Friday, when European Union leaders are already scheduled to meet again.
        Mr. Tsipras appeared optimistic a deal could be sealed. "We are coming here today in order to achieve a financially viable solution," he said.
        Greek officials said that much of the pension target would be achieved by increasing contributions from employers. On top of that, an extra payment to the poorest pensioners, known as EKAS, would be phased out between 2018 and 2020, officials said.
        A reliance on extra contributions rather than cuts could still prove a stumbling block, even if the overall targets are met. The IMF has warned that Greek businesses and citizens already pay too many taxes and other levies it says are weighing on growth.
        "The whole [thing] has to add up and guarantee debt sustainability," one European official said. We "want our money back one day."
        The uncertainty over their country's financial future has unnerved many Greeks. On Monday, the ECB again authorized an increase to the emergency lending provided to Greek lenders to offset daily deposit outflows, a Greek bank official said. It was the third such increase in less than a week.
        The bank official didn't say how much more money Greek banks will have access to. "The ECB's board of directors will meet again by teleconference whenever it is needed," he added.
        Gabriele Steinhauser, Nektaria Stamouli and Natalia Drozdiak contributed to this article.
        (END) Dow Jones Newswires

        June 22, 2015 20:07 ET (00:07 GMT)

#FX
#Forex
#SaleForex
#GreekBailout
#ProposalsLift
#HopesDeal