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Business News/ News / World/  Creditors, Greece at odds on aid; Sensex snaps winning streak
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Creditors, Greece at odds on aid; Sensex snaps winning streak

International creditors demand sweeping changes to Greece's proposed tax and reform plans on Wednesday

Greek Prime Minister Alexis Tsipras on Wednesday said certain creditors had rejected fiscal measures Athens put forward. Photo: BloombergPremium
Greek Prime Minister Alexis Tsipras on Wednesday said certain creditors had rejected fiscal measures Athens put forward. Photo: Bloomberg

Brussels/Mumbai: International creditors demanded sweeping changes to Greece’s proposed tax and reform plans on Wednesday, adding a fresh element of uncertainty to talks aimed at unlocking aid to avert a debt default.

People close to the negotiations said the creditors had presented counter-proposals covering differences on sensitive issues, just hours before euro zone finance ministers were due to convene (1700 GMT) to try to approve an agreement.

Before flying to Brussels, Greek Prime Minister Alexis Tsipras attacked the position of “certain" creditors—a swipe at the International Monetary Fund (IMF)—as strange since he said they had rejected fiscal measures Athens put forward to plug a budget gap.

“This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed," the leftist premier tweeted.

Financial markets reacted nervously, with investors rushing into safe-haven German bonds and the euro suffering a brief sell-off. European shares dropped and US stocks opened lower.

Indian stocks snapped an eight-session winning streak, the longest in five months, as concerns over Greece defaulting on its debt resurfaced. BSE’s 30-share benchmark Sensex fell 74.70 points, or 0.27%, to 27,729.67, while the National Stock Exchange’s 50-share Nifty dropped 0.25% to 8,360.85. It ended the Sensex’s longest stretch of gains since 27 January.

Earlier in the day, the Sensex rose as much as 0.52% to 27,948.24 points, while the Nifty climbed as much as 0.47% to 8,421.35 points.

“Markets gave up all the gains after the Greece news came out," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd. “Volatility is going to be flavour of the season. We will have to wait till weekend on what is the latest update on Greece. That said, monsoon is definitely a big respite. There were talks of a drought earlier, and seems like those worries are unfounded at this point of time," he added.

Reserve Bank of India governor Raghuram Rajan said the Indian economy will see through any impact of the Greece crisis.

One factor helping India is its stronger foreign exchange reserves, Rajan added in a conference at the Stockholm School of Economics.

“We need to remain cautiously optimistic," said Ajay Bodke, head of investment strategy and advisory at Prabhudas Lilladher Pvt. Ltd, adding that all was not yet over for Greece yet, and one needs to see how things unfold from here on.

According to Bodke, further market movements will depend on the progress of the monsoon and more importantly, government monthly expenditure figures. He noted that indirect taxes had been buoyant in the first two months of the current fiscal year, indicating a pickup in economic activity. “Market will not gallop, neither will it trot, but it will canter," added Bodke.

In Brussels, an EU official insisted the talks had not broken down and said the exchange of different proposals was a normal part of the negotiations.

But because there is so little time left to reach a deal before Greece has to make a repayment to IMF on 30 June, the day its current bailout expires, the talks were particularly fraught.

If Greece misses that payment and is declared in default to IMF, it could trigger a bank run, capital controls and an eventual Greek exit from the euro zone, showing that membership of the currency is not irrevocable as its founders proclaimed.

Greece’s economy minister George Stathakis said only three of Athens’ 50 proposals were still in dispute, but several people familiar with the talks said there were many more gaps. The open issues included labour laws, collective bargaining, pension reform, public sector wages, opening up closed professions, investment as well as value-added tax and corporation tax.

“Of course we want changes and they don’t, and this is part of the bargaining process, albeit less effective when done publicly," a senior official from one of the creditors said.

Several people familiar with the situation said IMF chief Christine Lagarde was taking the hardest line against the Greek proposals on the table.

Officials said IMF was most concerned about the balance of the package, too heavily skewed towards tax increases that could further weaken the Greek economy and prove hard to collect, rather than structural reforms.

“If you ask the question ‘Is this enough for the IMF to disburse?’, I suspect it’s not enough," one official said.

In Berlin, a senior German official said Germany could not imagine clinching an aid-for-reform deal without IMF, which was needed not only for its funds but also its expertise.

Athens must repay €1.6 billion to IMF next Tuesday. EU officials said the only way to fund that was for euro zone governments to hand over nearly €2 billion in profits from ECB holdings of Greek government bonds purchased in 2011-12. Reuters

Ami Shah works with Mint in Mumbai.

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Published: 24 Jun 2015, 11:54 PM IST
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