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.
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