July 27, 2015 / 11:25 AM / 2 years ago

Greek creditors seek third wave of reforms before loan

BRUSSELS/ATHENS (Reuters) - International creditors want Greece to enact a third wave of politically sensitive reforms before they will release any money to keep the near bankrupt country afloat under a third bailout they began negotiating on Monday.

Tourists stand in front of the Parthenon temple as they visit the archaeological site of the Acropolis hill in Athens, Greece July 26, 2015. REUTERS/Ronen Zvulun -

The government of Prime Minister Alexis Tsipras has pushed two packages of measures through parliament this month as a condition for starting talks on a three-year loan worth up to 86 billion euros ($95 billion) to keep Greece in the euro zone.

Technical talks, delayed for several days by logistical issues, began as former Finance Minister Yanis Varoufakis confirmed he had made secret plans to hack into citizens’ tax codes to issue a parallel currency if necessary.

Varoufakis said Tspiras had initially approved contingency planning by a five-person unit in his ministry led by U.S. economist James Galbraith but had refused to give the green light to activate the plan after Greece had to close its banks and impose capital controls on June 28.

The outspoken minister, long regarded by creditors as an obstacle to any deal, resigned a week later.

Figures issued by the European Central Bank showed Greek banks lost 6 percent of all deposits, worth 8 billion euros, in June alone as previous bailout talks foundered and the leftist government called a referendum to reject the terms.

A spokeswoman for the European Commission said teams of experts from the creditor institutions were now in Athens. “Work has started, meaning that the institutions are talking to the Greek authorities,” she said.

The talks had been due to start last Friday, but were postponed because of organizational and security issues.

“Negotiations on a Memorandum of Understanding should now progress as swiftly as possible,” Commission spokeswoman Mina Andreeva told a news briefing.

Both sides say they want a deal concluded before Aug. 20 but Germany, Greece’s biggest and most demanding creditor, said there should be no rush.

Talks should be conducted thoroughly and without time pressure, a German Finance Ministry spokesman said, adding that the reforms should be ambitious.

In a conference call with the London-based OMFIF think-tank, recorded on July 16 but released on Monday, Varoufakis gave details of his secret planning and also accused German Finance Minister Wolfgang Schaeuble of being “bent on effecting a Grexit” - forcing Athens to leave the currency area.

Greece came close to the brink during a long stand off between the government and its creditors, with Athens missing a debt repayment to the International Monetary Fund on June 30, leading to the three-week bank closure and cash rationing.

Voters angered by years of austerity rejected bailout terms in a referendum on July 7, only for Tsipras to accept even more stringent conditions a week later as the crisis deepened.

The institutions involved in the talks are the European Commission, the ECB and the IMF, as well as the euro zone’s rescue fund, the European Stability Mechanism (ESM).

EU officials said the heads of mission of the Commission and the ECB were already on the ground and the new IMF mission chief was due in Athens by Friday to hold talks on a political level.

Andreeva said Greece had delivered “in a timely and overall satisfactory manner” on promises made at a euro zone summit on July 13 of prior legislation to enable the negotiations.

“More reforms are expected from the Greek authorities to allow for a swift disbursement under the ESM. This is also what is being discussed right now,” she said.

The banks have reopened after the ECB increased emergency funding but capital controls remain in place. Doubts persist about whether a severely weakened Greek economy can support another program after a six-year slump that has cut output by a quarter and sent unemployment over 25 percent.

EARLY RETIREMENT, FARMERS TARGETED

Among politically sensitive measures held back from the initial package were curbs on early retirement and changes in the taxation of farmers to close loopholes that are highly costly for the Greek state. A source close to the talks said these reforms were expected to be enacted by mid-August.

However, touching pensions is sensitive with Tsipras’s left-wing Syriza party, which has already suffered a substantial revolt over the Brussels agreement, and the main opposition New Democracy party opposes ending tax breaks for farmers.

Tsipras appealed for unity at a meeting of Syriza’s policy-making political committee on Monday and said there was room for discussion with the lenders on labor reform, phasing out measures for the farmers and finding alternatives of equivalent value on pension reforms and privatizations.

The government should move forward on other issues that bore the leftist trademark, such as clamping down tax evasion and corruption and reforming public administration, Tsipras said.

“The Left movement should fight on all these fronts,” he said. “We should not quit the battle. This is the message we are getting from society and we have to listen to it.”

EU officials played down the latest outbreak of logistical and security issues that have dogged talks between the creditors and Greece since Tsipras’s government took office in January, promising to free Greeks from humiliation and imposed austerity.

An EU official said access for the negotiators to ministries and all relevant government bodies had been agreed. An ECB aide said some talks would take place at the Athens Hilton Hotel.

The talks will mostly cover a reform program Greece must implement to receive phased disbursements of loans, money it needs to meet its debt service obligations and help recapitalize the banks. However, an ECB policymaker said they would also cover debt relief for Athens.

ECB Executive Board member Benoit Coeure told French daily le Monde that the euro zone no longer questioned whether to restructure Greece’s debt but rather how best to go about it.

“That’s why it’s important to make this restructuring, whatever form it takes, conditional on the application of measures that reinforce the economy and ensure the sustainability of Greek public finances,” he said.

Coeure said five months of wrangling had caused huge economic and financial costs for Greece, and exposed how deeply flawed the euro zone’s decision-making was. He called for more integration in order to take tough decisions effectively.

Germany’s Schaeuble proposed at the height of the crisis that Greece take a five-year “time out” from the currency bloc if it could not meet the conditions.

“The genie of euro zone exit has escaped in the Greek crisis and won’t easily get back in the bottle,” Coeure said.

Additional reporting by Alexander Saeedy and Philip Blenkinsop in Brussels and Leigh Thomas in Paris; Writing by Paul Taylor; editing by David Stamp and Philippa Fletcher

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