A Greek/German standoff

February 10, 2015 09:29 AM

Lazard’s Advice

Any impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and puts Europe’s most-indebted state’s euro membership in danger.

Greece’s public debt currently stands at more than 320 billion euros, or about 175% of gross domestic product.

About €100 billion of that debt needs to be canceled for it to be manageable, Matthieu Pigasse, head of Lazard Financial Advisory, hired by the Greek government as adviser on issues related to public debt and fiscal management, said today in an interview on France Inter radio in Paris.

Such a reduction would bring the country’s ratio of debt to GDP to 120% in 2020 and would make Greece’s debt burden more “sustainable,” he said.

“Everyone knows, each European government knows, that the debt is today unsustainable or untenable,” he said.

Behind Rhetoric

Still, behind the public rhetoric, the Greek government has shifted to a more cooperative stance in recent conversations with the troika of the IMF, the European Central Bank and the Commission, according to an official representing the creditors.

Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Tsipras accepts he needs a new program, which will include monitoring, and commits not to reverse the most important overhauls of the bailout agreement.

The Greek government’s proposal for a bridge deal is aimed at allowing the country to break the impasse and negotiate a more permanent arrangement with its creditors by this summer.

Greece is pushing for a successor program to its current bailout, which will be focused on structural economic overhauls rather than fiscal measures.

The government said that reforms will be carried out in cooperation with the Organization for Economic Cooperation and Development, while it will not allow the budget to be derailed.

Confidence Vote

Greece’s new anti-bailout government, led by Tsipras, laid out a lengthy list of policy actions, including a gradual increase in the minimum wage and a boost to the threshold of tax-exempt income. The plan will be put to a confidence vote in Greece’s parliament today. The measures would breach the terms of the country’s emergency loans agreement with the euro area and the IMF.

Tsipras has said they are necessary to alleviate the “humanitarian crisis” in Greece after five years of belt tightening that left more than a quarter of the workforce without a job. A Feb. 6 poll for Skai Television showed that 72% of those surveyed support his negotiating tactics.

Last week Varoufakis told investors in London that the debt restructuring Athens is requesting will not include a writedown on the nominal value of the country’s debt.

Greece is also open to discussing a precautionary credit line backed by euro-area funds after the deal on the bridge program has been sealed, said the Greek government official who spoke on the condition of anonymity.

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