Greece Risks Sanctions From Creditors on Tsipras Surplus Cut

(Bloomberg) -- Greece’s euro-area creditors are open to sanctioning the country for a potential breach of debt obligations over a proposal to lower its annual primary surplus, according to people familiar with the discussions.

Creditors expect the planned reduction of the primary surplus to 2.5% of gross domestic product to result in a violation of the agreement that requires a 3.5% surplus, said the people, who asked not to be identified because the talks are private. They took notice of Prime Minister Alexis Tsipras’s announcement when they were in Greece this week to review reforms, the people said.

While the impact of the new fiscal targets still needs to be fully assessed, creditors are anticipating sanctioning Greece when the next debt decision is due in the fall, the people said. Possible sanctions could include withholding Greece’s share of European Central Bank bond profits and not reimbursing the annual penalty the country pays on some loans, one of the people said.

The ECB and the European Stability Mechanism, which helps oversee Greece’s debt program, declined to comment.

Renewed pressure from international creditors could add to headaches for Tsipras, who faces his fifth confidence vote since he came to power in 2015 later on Friday. With his term due to end in September and the country in election mode prior to the European Parliament vote later this month, domestic political tensions are rising. The prime minister’s Syriza party is lagging in the polls, and Tsipras hopes that the latest fiscal move will help reduce the gap with main rival New Democracy.

Greece’s budget targets were agreed with creditors in exchange for some debt relief measures. Tsipras said on Tuesday that even with a lower primary surplus, Greece will meet its debt obligations by transferring 5.5 billion euros ($6.2 billion) from the state’s cash reserves into a guarantee to its creditors.

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