Greece On Course For Euro Bailout Extension After Concessions

By Matthias Sobolewski and Jan Strupczewski

BERLIN/BRUSSELS, Feb 24 (Reuters) – Greece was on course to win a four-month extension of its euro zone financial rescue on Tuesday after backing down further to its partners on key leftist reforms and promising that measures to alleviate social distress will not derail its budget.

Eurogroup chairman Jeroen Dijsselbloem convened a telephone conference of finance ministers of the currency bloc to seal the decision after the new leftist-led government in Athens sent him a detailed list of reforms it plans to implement by July.

The six-page document signed by Marxist Finance Minister Yanis Varoufakis rowed back on campaign promises to halt privatizations, boost welfare spending and raise the minimum wage, vowing to consult partners before key reforms and keep them budget-neutral.

The European Commission called the Greek letter “sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.” Austrian Finance Minister Hans Joerg Schelling, a conservative fiscal hawk close to Germany, forecast a positive outcome from the teleconference.

Financial markets surged on the prospect of an extension of the 240 billion euro EU/IMF bailout, saving Greece for now from an imminent banking collapse, state bankruptcy and a possible disorderly exit from the euro zone.

However the country’s longer-term financial future remains in doubt with Dijsselbloem telling the European Parliament the euro zone’s most heavily indebted member is likely to need further assistance after two bailouts since 2010.

Crucially, the Greek plan pledged not to reverse any ongoing or completed privatizations, and to ensure that the fight against what the government calls the country’s humanitarian crisis “has no negative fiscal effects.”

The six-page document, seen by Reuters, contained few figures but promised to improve tax enforcement, fight corruption and “review and control spending in every area of government spending.”

After experts from the Commission, European Central Bank and International Monetary Fund gave it initial approval, euro zone finance ministers were to confer from 1300 GMT.

Greek financial markets, which reopened for the first time since Friday’s outline deal between Varoufakis and euro zone finance ministers, rallied on relief that a meltdown had narrowly been averted for now.

Government bond yields dropped by three percentage points and stocks hit a 2-1/2 month high due even though the country’s longer-term survival in the single currency remains uncertain.

Dijsselbloem, who is also Dutch finance minister, said the European Parliament the Greek reform list was just a first step and it would take time to go into detail, but it showed the Greeks were serious about reform.

He hinted strongly that Athens would need a further aid program when the four months expires, saying: “I think we need to consider further support for Greece.”

The euro zone could consider further debt relief measures if Athens met all the criteria specified in its November 2012 second bailout, “which hasn’t happened yet,” he said.


A Greek exit from the euro zone had not been discussed and was not on the table, Dijsselbloem said, adding that the only government that had held a meeting to prepare for a possible “Grexit” was in non-euro Britain.

In EU paymaster Germany, Finance Minister Wolfgang Schaeuble, who took the toughest line in the Greek negotiations, wrote to the speaker of the lower house of parliament requesting a vote this week on extending the bailout.

“Provided Greece avows its obligations and provided there is an agreement in the Eurogroup (of finance ministers), the German government would be in favor of the proposed extension,” he wrote, according to business daily Handelsblatt.

Germany’s rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the “troika” of EU, ECB and IMF inspectors.

The letter said Greece would phase in collective bargaining with a view to raising minimum wages “over time” but promised that any changes would be agreed with its partners.

While leftist Prime Minister Alexis Tsipras has won broad support in his coalition for the deal clinched in Brussels, some hardline leftists have criticized it and the conservative opposition has charged that his illusions have been punctured.

In a televised address on Saturday, Tsipras called the tentative accord a victory for Greece, but participants said Athens was isolated in the talks and forced to make humiliating concessions because its banks were running out of cash.

Latvia’s central bank governor, a member of the ECB’s policymaking governing council, cast doubt on elements of the Greek reform plan, such as tackling tax evasion and smuggling, questioning how much extra revenue they would raise.

“Those are soft measures, which may partly fill the budget gaps in the short-term, but (in the case of Latvia) nobody planned or budgeted it as permanent revenues,” Ilmars Rimsevics told state broadcaster LTV.

Commenting on ongoing negotiations with Greece, he said: “For Europe, in a certain way, fatigue has set in, and this nursing and instructing all the time is also very burdensome.” (Additional reporting by Deepa Babington in Athens, Adrian Croft in Brussels, Erik Kirschbaum in Berlin, John Geddie in London and Aija Krutaine in Riga; Writing by Paul Taylor; editing by Anna Willard)

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