Greek Creditors Talk Up Reform Drive But Withhold Fresh Cash

(Bloomberg) -- European officials sought to quell fears Greece is going off track just months after its bailout ended, talking up the country’s reform drive even though Athens has yet to fulfill the conditions attached to the disbursement of some 1 billion euros ($1.1 billion) in debt-relief aid.

The decision to withhold the cash was taken at a meeting of euro-area finance ministers in Brussels on Monday, marking the delay of the first post-bailout payment the country is set to receive as part of a deal struck last year with its European creditors to ease its debt load.

Yet despite the holdup, ministers played down the foot-dragging and voiced optimism that the outstanding overhauls will soon be completed, allowing for the funds to be disbursed when they next meet in April.

“Overall there has been very good progress,” said Mario Centeno, the Portuguese finance minister who presided over the meeting with his counterparts. “If all reform commitments are met, the Eurogroup will consider in April the implementation of further debt relief measures.”

Although Greece exited its international bailout last summer, it still needs to undertake overhauls in exchange for semi-annual disbursements of cash until mid-2022, money that’s to be used by the euro area’s most-indebted nation to ease the refinancing of its burden.

Insolvency Law

Greece has so far completed 13 of the 16 reforms it has to undertake in exchange for the first tranche of post-bailout payments. But the key issue making creditors withhold the disbursement is the government’s proposed legislation on the protection of homeowners’ primary residence from foreclosure, which EU officials said is too generous.

The legislation goes to the heart of what many officials see as a key source of Greece’s problems: a problematic payment culture that weighs on the balance sheets of already-strained banks.

Other open issues have to do with the sale of lignite plants and a motorway, and delays in the clearance of arrears, an EU official said.

While Greece doesn’t face a liquidity crunch, the holdup in the disbursement could signal to markets that the country’s reform-drive is waning ahead of an election later this year. Still, investor appetite for Greek assets seems to have improved. Moody’s Investors Service on March 1 raised Greece’s sovereign credit rating two steps to B1, although that’s still four levels below investment grade.

Crucially, Greece marked a milestone in its recovery from a bruising financial crisis after agreeing to sell 2.5 billion euros of 10-year bonds for the first time in nine years. Prime Minister Alexis Tsipras, facing a general election this year that polls show he’s set to lose, has pointed to bond sales as proof the country has turned a corner after its economy shrank by about a quarter during the crisis.

Greek Creditors Talk Up Reform Drive But Withhold Fresh Cash

Tsipras’ government has been slow to implement the agreed measures and taken some policy decisions -- including an increase in the minimum wage and proposed subsidies for mortgages -- that have spooked creditors. This has given rise to questions on whether the holdups are part of reform fatigue or -- more crucially -- a political choice that spells out further fiscal profligacy.

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