Greece: is a deal on the cards?

There are indications that Greece's creditors have agreed on a package to present to Athens. Meanwhile, Greece has come up with its own deal.

What's going on?

After much negotiation, the IMF and the European Commission are reported to have agreed on a deal worth €7.2bn in bailout funds to the Greeks, which would enable them to continue making loan repayments to the IMF until the end of the summer.

In return, Athens would have to continue with reforms, including a reduction in pensions (the state pension fund is currently running a deficit). It would also have to continue with austerity by agreeing to run a primary surplus (before interest payments) of 3.5% of GDP in the medium term.

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Has Greece accepted this?

Despite near-constant claims in the past few days that a deal was imminent, Greece has hinted that it may not accept this offer. Instead, it has reportedly tabled its counter-offer. While this has not been revealed, it is said to include much looser fiscal terms, including a primary surplus of only 1% this year, followed by 1.5% in 2016.

In a further sign that its position is hardening, it has said that if its terms are not accepted, it will not pay the IMF €300m payment that is due on Friday.

Is Greece bluffing?

Experts are divided as to whether Greece's stance is serious or just a negotiating tactic. According to the Times, an unnamed Greek official has indicated that it may make the payments due on the 5th and 12th anyway.

Others disagree. Ambrose Evans-Pritchard of the Daily Telegraph thinks that "much of the Syriza leadership and possibly Mr Tsipras himself has already concluded that a deal on tolerable terms is impossible, and may be resigned to default and a return to the drachma". He thinks they are no focused on trying "to justify a final rupture by persuading Greek public opinion that Grexit was forced upon them".

Is there any long-run solution?

Greece's huge level of debt, roughly equivalent to 170% of GDP, means that some form of long-term debt relief will be needed. There is the possibility that Greece will be able to use an additional €11bn in bailout funds originally intended to bail out Greek banks. This would delay the country's problems for the next 15 months. Capital Economics points out that this part of the offer hasn't been confirmed, and would need approval, which might take some time.

What about creditor countries?

There are signs that creditor countries, which need to approve any deal, are getting angrier about Greece's behaviour. There has been outrage in the Netherlands at suggestions by the country's fiscal authority that substantial haircuts on the €12bn that it has loaned to Greece are inevitable.

At the same time, Angela Merkel has to contend with critics in her "grand coalition" who think that she is being both too soft and too tough on Greece (though polls suggest that the majority of the Germans want her to be even tougher).