U.S. Presses Greece on Economic Overhauls Ahead of Debt Talks -- 3rd Update
July 21 2016 - 2:44PM
Dow Jones News
By Ian Talley and Nektaria Stamouli
ATHENS -- U.S. Treasury Secretary Jacob Lew on Thursday urged
Greece's leadership to press ahead with promised economic overhauls
as Athens struggles to roll out another round of politically tough
policy overhauls and contentious debt talks loom.
Mr. Lew and his lieutenants are trying to help broker a
compromise between Greece and its European creditors still at odds
over how to cut the country's debt. The U.S. hopes nudging Greece
toward a stronger roll-out of overhauls will smooth the way for
debt-restructuring negotiations in the coming weeks.
Washington is eager to prevent the Greek crisis metastasizing
again, especially as the global economy is buffeted by a multitude
of headwinds. Anemic European growth is dragging on U.S. output.
The U.K. vote to exit the European Union threatens the bloc's fate
and is weighing on consumer sentiment and investment. And weak
Italian banks are at risk of spreading broader contagion throughout
the financial system.
Greece, the International Monetary Fund and its European
creditors agreed in May to a third bailout based on Athens further
trimming its spending, raising taxes and liberalizing its economy.
The IMF, which has lent the program credibility to help Greece's
European creditors continue financing the country, said it needs a
concrete debt-relief program before it coughs up more cash for
Greece. Greece's fragile left-led coalition government sold the
controversial policies with the promise of a substantial cut in its
debt.
But that deal has yet to be struck. Debt relief is anathema in
Germany, with negotiations made more difficult as Berlin's
leadership eyes elections next year. Participation by the IMF,
which is seen as essential to secure debt relief for Greece, isn't
assured.
Failure to resolve the Greek debt problem could exacerbate
broader fears about the eurozone, and the U.S. sees preserving
Greece's stability as vital to its economic and geopolitical
interests, especially given the recent failed coup in Turkey and
the regional immigration crisis.
Greek Prime Minister Alexis Tsipras, while welcoming Mr. Lew in
his office Thursday, said, "This is the time that Greece needs
solidarity more than ever from its creditors." Substantial debt
relief is needed to support the economy and strengthen Greece's
role as pillar of stability in this fragile region, he said.
According to officials, Mr. Lew told Mr. Tsipras that the U.S.
would like Greece's debt relief issue to be resolved before the end
of its term.
Earlier Mr. Lew praised efforts by Athens over the last year to
tighten its budget, including through pension cuts. Those actions,
U.S. officials believe, have helped restore a measure of trust with
the country's European creditors and the International Monetary
Fund.
"It is important as we look toward the remainder of the summer
and the fall that Greece continue to implement the measures that
have already been passed," Mr. Lew said after meeting with Greek
Finance Minister Euclid Tsakalotos. Athens must "make headway on
the next set of milestones due in October, including by following
through on privatization plans and moving forward with critical
financial sector reforms."
Moving ahead with the promised economic policies, including
overhauls of the product and service markets, will not only spur
growth and international investment, but also pave the way for
coming debt talks, U.S. officials said.
"Progress on reforms is also important so that soon European
leaders can begin discussing with the IMF the timing and details of
debt relief," the secretary said. "Putting Greece's debt on a
sustainable path is critical to Greece's long-term economic health,
and I encourage all parties to be flexible to successfully conclude
this fall's negotiations."
Greek officials, meanwhile, are wary of pushing through the
deep-cutting measures with unemployment at 23% and the population
suffering from chronic bailout fatigue after six years of dramatic
belt-tightening. That is one reason the U.S. wants Germany and
Greece's other European creditors to finally agree to a concrete
plan for debt relief. Failure to do that could once again stall
Athens' economic overhauls, exacerbate anti-euro tensions among
Greek voters and set the stage for more contentious and
stability-threatening negotiations next year.
"There is no room for delay," said a senior Greek official after
the high-level meetings.
The U.S. is relatively agnostic about the type of debt relief
Greece receives, as long as it finally puts Greece on a path toward
growth and debt is made manageable. Officials are wary, however, of
the IMF pressing Germany too hard for an actual cut in the value of
the principal. That means further interest rate reductions and
decadeslong maturity extensions appear to be the primary path to a
compromise.
"The right approach is a pragmatic one that gets to a bottom
line that leaves a very clear path forward that is stable and
affordable and sustainable," the secretary said. "I certainly hope
that the discussion over the coming months produces clarity in that
regard."
Write to Ian Talley at ian.talley@wsj.com and Nektaria Stamouli
at nektaria.stamouli@wsj.com
(END) Dow Jones Newswires
July 21, 2016 14:29 ET (18:29 GMT)
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