Greece’s Missed Debt Reduction Target Could Affect Payments

European officials have hinted that they may consider breaking Greece’s next instalment of bail-out money into smaller tranches or force the Athens government to find other sources of cash this summer if it fails to reach an accord this week on economic policy targets.

Greece, which originally triggered the prolonged European sovereign debt crisis, is awaiting payments totalling €8.1bn this month, but these are contingent on prime minister Antonis Samaras meeting creditors’ demands for economic reforms including a reduction in the government’s payroll.

Finance Ministry officials have already said that the country will not meet the targets on reforming its public sector by the deadline set at the end of this week. However, they said that Athens expects to reach agreement with its foreign lenders on all other issues before a Eurogroup meeting on 8 July.

Both the European Union (EU) and International Monetary Fund (IMF) are unhappy with the country’s progress to date in reforming its public sector. If they are not persuaded that Greece is on track to meet its reform goals, the lenders may freeze emergency aid for three months, according to a senior EU official.

“Some of you made reference to the possibility of doing this in tranches again,” Dutch finance minister Jeroen Dijsselbloem, who will chair the 8 July meeting of euro finance ministers, told Dutch lawmakers in The Hague. “This possibility always exists.”

Athens must conclude talks with its lenders by the middle of this month if it is to receive the latest aid tranche, which is needed to redeem about €2.2bn of bonds in August.

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