>>> Telefonica considering options for O2 in light of expected EC block on sale

Telefonica considering options for O2 in light of expected EC block on sale to Hutchison; Iliad considering bid 

The Spanish telecoms group Telefonica [BME:TEF] is considering options for its UK mobile telecoms network O2 in light of the European Commission’s expected decision to block its agreed sale to CK Hutchison’s [HKG: 0001] Three network, The Sunday Times reported. The newspaper did not cite a source for the information.

CK Hutchison, a Hong Kong-based conglomerate, is likely to launch a legal challenge to the EC’s ruling, the item said.

It is expected that Telefonica will over the next few weeks talk to potential buyers for O2, according to the report.

The French mobile network operator Iliad [EPA:ILD] is thought to be mulling an offer for O2, the item continued. Xavier Niel is Iliad’s controlling shareholder.

Sky [LON:SKY], a UK-based satellite television operator, has been tipped as a potential buyer for O2, having offered to acquire part of the network that would be formed should the O2/Three deal proceed, the article noted. However, the report cited unspecified sources who said Sky would probably not be interested in buying O2 outright, the report said.

The newspaper said Virgin Media owner Liberty Global [NASDAQ:LBTYK] has also been suggested as a potential buyer for O2, although the UK-based media group might not want to spend GBP 10bn, having made several previous European acquisitions.

It is expected that Telefonica will consider listing its UK division or possibly spinning off its mobile masts, according to the report.

Separately, The Sunday Telegraph cited City analysts who argued that Hutchison might now look to the UK-based broadband service provider Talk Talk Telecom Group [LON:TALK] as an alternative target.

The prospect of the EC blocking its takeover of O2 or Telefonica abandoning the deal to pursue a cash injection could lead Hutchison to consider bidding for TalkTalk,the item said.

Sunday Times, Sunday Telegraph

FT : Draghi, Schäuble and the high cost of Germany’s savings culture

Draghi, Schäuble and the high cost of Germany’s savings culture

This could tell us that Berlin, perhaps more so than Athens, is unprepared for monetary union

ight now the biggest problem for Mario Draghi is not Greece. It is Germany. Last week the president of the European Central Bank hit back at Berlin’s criticism of his loose interest rate policies by pointing out that Germany’s persistent current account surplus is one of the main causes. The furious reaction he faced says much about the faultlines in Europe’s economic debate.
Low interest rates and Germany’s current account surplus are the poisonous twins of the eurozone economy. The surplus caused low rates, as Mr Draghi rightly says. But it is also true that low interest rates have increased the German current account surplus through the devaluation of the euro in the past year. A cheaper currency makes German goods and services more competitive outside the eurozone.

The more pertinent of the two interpretations is Mr Draghi’s. By insisting on austerity during the eurozone crisis, and failing to raise investment spending at home, Berlin was instrumental in de­pressing aggregate demand at home and in the eurozone at large. The eurozone’s long depression caused a fall in inflation below the target rate of just under 2 per cent. The ECB response has been to cut short-term rates to negative levels and buy financial assets. If German fiscal policy had been neutral during that period, the ECB’s job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much.
Berlin views the current account surplus simply as a reflection of Germany’s superior competitiveness. This is an economically illiterate view — or rather it deliberately deflects from the real problem. If Germany had its own currency and a floating exchange rate, the current account imbalance would have mostly disappeared. Even in a monetary union, a large imbalance would not matter if the union was politically integrated and had a common fiscal policy. But imbalances matter in the monetary union we have, one without redistribution and reinsurance systems. It is no coincidence Germany rejects these re­distribution mechanisms. This is how it maximises its current account surplus. It constitutes an implicit policy goal.
In the long run, I cannot see how this is in Germany’s interests. Wolfgang Schäuble, finance minister, was right to say that low rates are driving voters to Alternative for Germany, an anti-euro and anti-immigrant party. Only it was not the ECB’s fault. AfD comprises mostly well-off older Germans. They want out of the euro because they would benefit from a better exchange rate and higher interest rates — or so they think.

But if both Mr Draghi and Mr Schäuble are right, the consequences are troubling. It tells us that Germany, perhaps more so than Greece, is unprepared for membership of a monetary union. Under the Bretton Woods system of semi-fixed exchange rates, Germany’s strategy has been to lock itself into fixed exchange rate system then seek a “real” devaluation through lower relative wages than its competitors. When the system imploded an appreciation of the D-Mark followed. The same happened in the exchange rate mechanism, a precursor to the euro created in the late 1970s. But the euro is meant to be forever. There is no longer any corrective mechanism to Germany’s imbalances.
In theory, there is a simple solution. Berlin could cut taxes and raise investment spending. There is a lot of headroom. After years of austerity, the fiscal multiplier — the impact of each euro of deficit spending — is large.
Unfortunately, Germany’s balanced budget rule makes this impossible. More importantly, the electorate and their political representatives do not want it. They want to repay their debt. It is a bad choice but it is a democratic one. It means, however, that as long as Germany remains in the eurozone the imbalances will not correct themselves.

(Re/code.net) Streaming music has become Warner Music’s biggest business

Streaming music has become Warner Music’s biggest business

Another milestone in the music industry’s shift to streaming: Revenue from the streaming business has become Warner Music Group’s biggest business.

The company announced that money from services like Spotify and Apple Music was the single biggest source of recorded music revenue in the first quarter of the year, surpassing both physical sales and sales of digital downloads. That’s the first time any of the big music labels has hit that inflection point.

It also shouldn’t be a surprise, since Warner announced a year ago that streaming revenue had surpassed download for the first time. And if you want the glass-half-empty version of the statistic, you could argue that it means download sales and CD sales continue to fall.

Still, even a music pessimist would have to note that the streaming boom is now bigger than the rest of the industry’s decline. Warner’s streaming music revenue increased $72 million for the quarter — more than half of which came from sales outside the U.S. — while downloads declined by $17 million and physical revenue dropped by $6 million. Warner’s recorded music sales increased by 10 percent overall, and the company’s total revenue also increased 10 percent.

Warner, like the rest of the music industry, would like more than that. And Warner, like the rest of the music industry, is now hammering Google and YouTube to cough up more money — a campaign that coincides with the big labels’ renegotiations with the world’s biggest video service.

“It is imperative that we ensure a fairer correlation between the massive consumption of music via services built around user-uploaded content and the value generated for artists, songwriters and rights holders,” CEO Stephen Cooper said during Warner’s earnings call this morning. “We have made our views known through our submissions to the European Commission and the U.S. Copyright Office.”

Which isn’t to say that Warner, or the rest of the music business, really wants to walk away from YouTube — it’s simply too big to ignore. Case in point: Last night at YouTube’s big “brandcast” event to woo advertisers, YouTube spent several minutes talking about the importance of music to its users, and then brought out an up-and-coming performer who testified that they had gotten a big boost from the service.

The act? Andra Day. Her label? Warner Music.

Reuters - China trade may sway Fed's rate decision


China trade may sway Fed's rate decision

The Federal Reserve's debate over whether to raise U.S. interest rates in June may be decided in the coming week, as investors look for any cracks in China and evidence of a solid start to the second quarter in the United States.

A run of Chinese data is expected to show activity moderated in April after a strong showing in March. A Reuters poll forecast a small drop in all-important exports last month.

For much of the past year, China has been at the center of financial market turmoil, sometimes offering reassurance but mostly fuelling concern its economy - and global growth - are losing momentum.

"Trade figures always matter enormously to a trade-dependent nation like China, so April's exports and imports will be closely watched," Scotiabank's Derek Holt said.

Economic activity increased in the first quarter because of record bank lending. But worries about a commodity bubble and fast-rising home prices, as well as spreading debt defaults and bad loans, led regulators to tap the brakes on expectations of further aggressive stimulus.

Any evidence of a further slowdown in China could dissuade the U.S. Fed from tightening policy as expected in June.

Fed policymakers acknowledged last month there were risks to the U.S. economy and suggested two more rate increases were in store this year. That was only half what they thought when they tightened policy for the first time in a decade late last year.

Casting further doubt on the case for raising rates, the U.S. economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force in droves.

Retail sales figures due on May 13 are expected to show sales picked up in April after falling 0.4 percent in March.

"Consumer spending started the year on a sluggish note, but we look for it to strengthen in Q2, both in overall terms and in the goods component specifically," said James Sweeney at Credit Suisse. "The monthly April report on retail sales should provide preliminary support for our Q2 forecast."

A May reading of the University of Michigan consumer sentiment survey on Friday, which the Fed is sensitive to, will probably also show a pick up.

Six state Fed chiefs are due to speak in the week, including the voting heads from Boston, Cleveland and Kansas City.

No change is expected from the Bank of England on Thursday. Bank policymakers are likely to be preoccupied by the June 23 referendum on whether Britain should remain a member of the European Union [BOE/INT].

Most economists say a vote to leave damage the economy and weaken sterling. Finance Minister George Osborne will present his views on EU membership to lawmakers on Wednesday [ECILT/GB].

"The interest will lie with the accompanying Quarterly Inflation Report and meeting minutes for the committee's judgment on the impact of sterling's fall since February plus any comments about the impact of the referendum," Investec told clients.

Britain's central bank will probably lower its growth projections but hold inflation forecasts steady in the quarterly report, according to a majority of economists polled late last month.

The central banks of Korea, Thailand and the Philippines also meet during the week. No change is expected from them, either.

On Friday, after a light data week, Eurostat will update its preliminary euro zone GDP data. The region's economy grew at its fastest pace in five years in the first quarter, 0.6 percent, driven by unlikely stars such as France and Spain.

It has now grown larger that its peak before the financial crisis - although it took eight years to recover - and last quarter's growth rate exceeded growth in both the U.S. and Britain.

Barron's : Einhorn, Chanos, Gundlach: Picks and Pans from the Pros

Einhorn, Chanos, Gundlach: Picks and Pans from the Pros

Recommendations from last week’s Sohn conference in New York. Druckenmiller sounds a warning.

David Einhorn, Jim Chanos, and other top hedge fund managers recommended more than a dozen stocks, bonds, and exchange-traded funds at the 2016 Sohn Investment Conference in New York last Wednesday, urging investors to take advantage of historic dislocations in commodity and currency markets. Few speakers were bullish on the stock market overall, and one prominent prognosticator, Stanley Druckenmiller, simply told people to get out of stocks now. But the crowd still saw opportunities to profit, often by taking the short side of trades.

The annual Sohn conference raised $4 million for pediatric-cancer research and treatment. To draw the big bucks, the conference invites a roster of star investors whose picks sometimes move stocks sharply, even while they are speaking. In general, this year’s speakers were gloomy about the market, setting the stage for the sharper-than-usual focus on short-selling.

Druckenmiller, who founded and ran Duquesne Capital before closing it in 2010, has been bearish for a while. But he sounded an even more dramatic alarm this year, urging investors to dump stocks and buy gold, which he called his “largest currency allocation.” Stretched valuations and declining profit margins indicate “the bull market is exhausting itself,” he said.

Zach Schreiber, a Druckenmiller protégé and chief investment officer of PointState Capital who correctly called the oil bust two years ago, took aim at Saudi Arabia, arguing that low oil prices have drained the country’s coffers. He estimated the Saudis’ fiscal break-even price at $90 a barrel. He doesn’t expect oil to top $55 in the medium-to-long term, in part because of advances in hydraulic fracturing, or fracking, and an ongoing market-share war among oil-producing nations.

While other currencies, including the Russian ruble, have adjusted to lower oil prices, the Saudi riyal remains pegged at 3.75 to $1, “as if nothing has happened.” It is time for Saudi Arabia to repeg the currency, he argued.

Investors can participate in this trade by using forward contracts to buy dollars and sell Saudi riyals in the future at an annual cost of about 1%. Schreiber thinks the trade could make investors 10 to 50 times their money, depending on when the devaluation occurs.

Carson Block, founder of Muddy Waters Research, known for its short-selling ideas, presented a bearish case for Bank of the Ozarks (ticker: OZRK), an Arkansas lender that has been buying other banks. It is heavily dependent on real estate loans, which make up about 89% of its loan book, and has moved into real estate markets, such as New York and San Francisco, that show signs of having peaked, he argued. “In the best case, Ozarks rerates because it can’t sustain earnings growth,” he said. “We think it’s cracking right now.”

Shares fell 15% as Block was speaking and ended the day down 4%. The bank didn’t respond to a request for comment.

Jim Chanos, founder of Kynikos Associates, was bearish on telecom company MTN Group (MTNOY) because of its dependence on South Africa and Nigeria, which together account for 62% of revenue. Both countries are plagued by corruption and face economic pressure due to China’s slowdown, Chanos said. “You could very quickly see a situation where profits to shareholders are completely eviscerated,” he added. MTN didn’t respond to a request for comment.

OTHER INVESTORS also offered bearish picks, but paired them with bullish calls. Greenlight Capital’s David Einhorn urged investors to avoid equipment-makerCaterpillar (CAT) because of its lofty valuation (21 times this year’s earnings estimates) and dim prospects. Caterpillar’s fortunes tend to rise and fall with the iron and coal markets. Einhorn said he sees little hope for coal rebounding “maybe ever,” and believes there’s an oversupply of iron.


Cat’s earnings could fall below $2 a share by 2018 from an expected $3.50 this year, he said, noting, “Today’s so-called trough of $3.50 will begin to look more like midcycle, and when that happens, CAT should trade for somewhere around half of its current share price.” Caterpillar didn’t respond to a request for comment.

Einhorn likes General Motors (GM), which trades for just 5.4 times this year’s earnings expectations but has strong prospects in both the U.S. and China. It could generate enough cash flow for the company to repurchase 25% of its shares through 2018. “There’s magic to a six P/E and a big buyback,” Einhorn said.

DoubleLine Capital’s Jeffrey Gundlach advised buying mortgage real estate investment trusts and selling utilities. The two often trade in tandem, but have diverged in recent months as investors have flocked to utilities for their perceived safety. “I expect things will converge,” he said.

Gundlach recommended that investors structure the trade with options, shorting theUtilities Select Sector SPDR (XLU) while buying the iShares Mortgage Real Estate Capped ETF (REM).


Adam Fisher, chief investment officer of Commonwealth Opportunity Capital, urged investors to sell 30-year Japanese bonds, calling them “maybe the most overpriced security on the face of the Earth,” while buying European bonds.

BULLS WERE IN shorter supply but made some notable recommendations. Chamath Palihapitiya, founder of venture-capital firm Social Capital, recommended Amazon.com(AMZN), saying it could increase tenfold by 2025 as it leverages a dominant position in retail sales and cloud computing. Jeffrey Smith, CEO of activist firm Starboard Value, cited its efforts to improve the pharmaceutical company DepoMed (DEPO) and packager WestRock (WRK), which he thinks could lead to big stock gains. John Khoury, founder of Long Pond Capital, was bullish on Hyatt Hotels (H), whose high-end properties could help insulate it from competition from Airbnb and other lodging insurgents.

Notably absent was Bill Ackman, a perennial conference participant who sat out this year’s event following a disastrous bullish call last year on Valeant Pharmaceuticals(VRX). He has said he plans to be back in 2017. 

Barron's : The Tocqueville International Value Fund Hits the Right Note

--> James Hung of the Tocqueville International Value fund takes a contrarian approach and doesnt view relative valuations as a harbinger of success or failure (top 10 holdings: Publicis Groupe, Amano, AFL, SNY, ISS, Samsung Electronics, Groupe Bruxelles Lambert, Smiths Group, Aveva Group, Hitachi). 


The Tocqueville International Value Fund Hits the Right Note

A contrarian bent pays off. Over the past 15 years, the Tocqueville International Value fund has beaten 96% of its peers.

Music lover James Hunt’s office at Tocqueville Asset Management couldn’t be more perfectly situated—just a block from Carnegie Hall. “There are analogies between being a musician and an investor,” says Hunt, who grew up singing and playing piano. “You have to know your craft and be disciplined, but the difference between average and good is…something intangible.”

Though Hunt, 53, never aspired to play music professionally, he has orchestrated exceptional returns for shareholders of the $435 million Tocqueville International Value fund (ticker: TIVFX), which he has managed since July 2001. Over the past 15 years, the fund is up an average of 8.1% annually, twice the average for its Morningstar foreign large blend category and better than 96% of its peers.

The fund’s contrarian approach proved particularly effective last year, when it gained 7.3%, versus an 0.81% decline for its benchmark, the MSCI EAFE index. Hunt attributes that performance to avoiding the worst of emerging markets and strong showings from many of the fund’s 50 holdings, including double-digit gains from Ireland-based energy marketing and distribution firm DCC (DCC.UK) and Japanese cosmetics firm Shiseido (4911.Japan), which he’s since sold.

“Buy good businesses at great prices,” says the former investment banker. Good businesses, he says, generate exceptional returns on invested capital, have strong positions in healthy markets, and don’t rely on financial leverage. “When those stocks suffer from negative sentiment in the market—we call it variant perception—it results in a discount to their intrinsic value,” he adds. As for great prices, Hunt and his team do their own cash-flow analysis to spot companies trading at roughly 30% less than what strategic buyers would pay for them.

While many investors look at relative valuations, Hunt and his team don’t consider them to be a harbinger of success or failure. “Where a stock is trading relative to its peers may raise questions, but it doesn’t provide a lot of real insight,” he says.

A NATIVE NEW YORKER, Hunt set off for Brown University with the notion he might pursue a career in journalism or diplomacy. Instead, he ended up an equity analyst at Delafield Asset Management. He parlayed that into an M.B.A. at Yale and an investment-banking position at Lehman Brothers.

That experience—not to mention living and working in Argentina during the Mexican peso crisis—was the ideal preamble for the type of investing he does at Tocqueville. The $11 billion, New York–based firm takes its name from French political thinker Alexis de Tocqueville, a contrarian in his own right.

Tocqueville International can invest in companies of any size in any market, though it limits its exposure to 35% of any single country and 25% of any single industry. Its largest holdings rarely exceed 3% of assets.

Hunt works with two portfolio managers and four analysts with wide-ranging backgrounds and experiences: a French native, a Tibetan educated in India, a Harvard art major, and a former partner at Lazard. “Everyone is a generalist,” Hunt says. “We don’t want people getting stuck in silos.”

There seems little risk of that. Investment ideas surface via a variety of channels, including headlines: The fund bought preferred shares of top-10 holding Samsung Electronics (005935.Korea) in 2014, when concerns about corporate governance and its handset business knocked it down to where, by Hunt’s estimate, it was trading for half the value of the sum of its parts.

Other ideas include past holdings whose prices make them interesting again. Amano (6436.Japan) is one such alumnus. The fund first bought the Japanese maker of systems for parking-garage exits and employee identification in 2003, sold in 2007, then bought again in 2014.

The strategy is decidedly bottom-up, but macro trends can prompt ideas. The market’s concerns about China’s economy led Hunt and his team to Global Logistic Properties (GLP.Singapore). It owns, manages, and leases industrial warehouses around the world, including the U.S., but its exposure to China drove down its share price last year. “We determined that the net asset value of its real estate was 2.30 to 2.50 Singapore dollars, but the stock was trading as low as S$1.60,” says Hunt, noting that the company has long-term leases in China from customers such as Amazon.com, JD.com, and Haier. “It offers a certainty of cash flow from commerce of all kinds, and as e-commerce continues to expand, there is a greater need for warehouses,” he observes.
Sometimes, Hunt and his team will make a move in the wake of a deal that has been panned by the market. Take Sopra Steria (SOP.France), which the fund bought in 2014, after Sopra, a French software company, merged with local competitor Steria. The market viewed the merger as a sign of weakness. “We saw the combination as complementary,” says Hunt, who invested when the shares were trading at nine times free cash flow, versus his fair-value estimate of 14 times. “Our thought was that, with the passage of time and execution, the market would re-rate the stock to a more appropriate level, which is exactly what happened.” In 2015, the stock jumped 70%.

When oil collapsed last year, Hunt & Co. figured there would be a lot of indiscriminate selling, and they “started snooping” for companies that would be unfairly punished for their ties to energy. They homed in on Aveva Group (AVV.UK), a U.K. company that makes software used to design and manage large industrial projects, such as oil rigs and power plants. “The price implied that Aveva’s cash flows were directly derived from the price of oil, but 70% of its revenues are recurring,” notes Hunt, who initiated the position in March 2015, when the stock was trading at 14 pounds sterling, down from a high of £26. The team’s free cash flow analysis determined it was worth £22, suggesting that the stock would either recover as investors came around, or the company would be acquired.

“The story panned out much more quickly than we expected,” Hunt says of the July 2015 announcement of Schneider Electric’s takeover bid. Aveva shares bounced, and the fund sold half its position. When Schneider backed out of the deal last December, the stock collapsed—it recently was at £16.05— “so we loaded up again,” says Hunt.

>>> Barrons weekend summary: positive on ICE, VC, EPC, LYG

Barrons weekend summary: positive on ICE, VC, EPC, LYG 

Cover story: Because of Australias proximity to China, the worlds second-largest economy as a supplier of resources, the Aussie dollar has tracked the ups and downs of Chinas growthand is now signaling that the rebound in commodities might have further to run. 

Tech Trader: For consumers, personal technology offers a range of intriguing gadgets, from fitness trackers to virtual reality headsets, but investors are worried about fading product categories such as the personal computer; The most important gadgets of the past, from PCs to smartphones, amplified human productivity but bots such as AMZNs Echo that work in the background are charting a different path by fostering passivity. 

Trader: Citi currency strategist Steven Englander says the market may already be starting to reflect the possibility of a fourth round of government bond buying; Mixed VRX: The companys fundamentals havent changed, and its underlying problemssuch as low revenue and profit growthremain; Mixed PRGO: Upon closer examination shares arent as cheap as they look, and investors continue to raise questions about the companys fundamentals. 

ETF Special Report: Exchange traded fund picks from a panel that includes David Cleary of Lazard Asset Management (MXI, ILF, PHB, ANGL), Will McGough of Stadion Money Management (IEMG, QEMM, HDV, IEFA), John Forlines III of JAForlines Global (HYXU, PFF, EFAV, USMV, EWC, EWA), and Fritz Folts, 3EDGE Asset Management (IAU, GDX, EWZ, INXX, QQQ, VBR). 

Profile: James Hung of the Tocqueville International Value fund takes a contrarian approach and doesnt view relative valuations as a harbinger of success or failure (top 10 holdings: Publicis Groupe, Amano, AFL, SNY, ISS, Samsung Electronics, Groupe Bruxelles Lambert, Smiths Group, Aveva Group, Hitachi). 

Features: 1) Positive ICE: Shares of financial services company, which surprised Wall Street by not bidding on the London Stock Exchange Group, look appealing at 18 times projected 2016 earnings, and could rise by 15%; 2) Positive on VC: Company has become leaner since its bankruptcy and is poised for more growth; it has products in some of the fastest-growing electronics categories, and shares could gain 25% or more this year; 3) Recommendations from the participants of last weeks Sohn conference in New York (short: PXD; long: VRX, MSFT, YUM, ABBV, BKD, QCOM, WBA, Puerto Rico Muni Bonds, 8% of 2035 and 6.2% of 2039). 

Small Caps: Positive EPC: Company has an attractive franchise and could be a likely acquisition target, and shares remain appealing despite the fact a buyer may not line up anytime soon. 

European Trader: Positive LYG: Bank has faced a tough road to recovery, but there are many reasons to believe the worst is behind it, and it offers investors a ray of hope in a sector where returns are hobbled by low interest rates and slow growth. 

Asian Trader: The Philippines is in the best shape in decades, and could see GDP growth of 5.9% this year, but whoever wins the countrys presidential race will face huge challenges. 

Emerging Markets: Investors who missed the spring rally may be tempted by lower prices, but need to be especially wary of countries such as Brazil and Turkey, where political upheaval is a major risk. 

Commodities: Drought, floods, and historically low global inventories have rice-market experts worried that the price of the grain could come close to doubling if harvests around the world continue to disappoint. 

Streetwise: Defense stocks such as NOC, LMT, HON, MAS, ROK, HRS, JEC, and TXT are likely to benefit from growth in government spending; Investors have given up on the Feds bond buying as a means of repairing the economy.

WSJ : Greek Lawmakers to Vote on Austerity Measures as Protests Continue

Greek Lawmakers to Vote on Austerity Measures as Protests Continue

Greek government hopes tax and pension reforms will unlock bailout funds but creditors remain deadlocked

ATHENS—Greece’s parliament is due to vote on pension overhauls and tax increases on Sunday night amid strikes and street protests, in a move the government hopes will impress the country’s creditors and unlock bailout funds.

But Greece’s most influential creditors, Germany and the International Monetary Fund, remain deadlocked over the terms of Greece’s bailout plan, which the IMF thinks is badly flawed but Germany says can’t be changed.

The Eurogroup, as the committee of eurozone finance ministers is known, will meet in Brussels Monday to discuss Greece’s fiscal strategy and the sustainability of its debts. A resolution of the deep differences isn’t expected.

The legislation on which Greek lawmakers will vote covers the bulk of a package of austerity measures worth around €5.4 billion ($6.16 billion), or 3% of gross domestic product, that creditors have asked for.

The legislation includes a simplification of Greece’s fragmented and costly pension system, which lenders and Greece’s ruling left-wing Syriza party agree is long overdue. But cuts to entitlements and increases in workers’ contributions have provoked opposition from Greek labor unions and other professional groups.

The measures are expected to pass, although the government has little scope for any rebellion by its lawmakers. The Syriza-led coalition has a majority of only three seats in the 300-member parliament. The problem for Prime Minister Alexis Tsipras is that key creditors won’t be satisfied with Sunday’s measures alone.

In a letter to eurozone finance ministers sent on Thursday, IMF head Christine Lagarde said Europe is trying to make Greece reach an unrealistically high budget surplus. If Europe won’t reduce the target, she said, then Greece will need to introduce austerity measures worth a further 2% of GDP.

Greece’s government, under pressure at home and fearful of losing its hold on power, is balking at extra austerity measures beyond the €5.4 billion package.

Greek Finance Minister Euclid Tsakalatos sent a letter to other eurozone finance ministers on Friday “appealing to both your economic and political experience” to argue that his government can’t be expected to pass even-tougher cuts totaling €9 billion.

“There is no way such a package could pass the present government, or, for that matter, any democratic government that I could envisage,” Mr. Tsakalotos wrote in the letter, seen by The Wall Street Journal.

Some participants expect the impasse to continue until Greece is on the brink of bankruptcy, which will happen by July at the latest, without a deal that releases billions of euros of fresh bailout loans.

The return of the Greek debt crisis this spring is exposing the limits of last July’s bailout agreement, which avoided a Greek exit from the euro after a hard-fought confrontation between Athens and its lenders for much of 2015.

The agreement left open the question of whether and how to restructure Greece’s massive debt, which the IMF says is unsustainable. It requires Greece to reach a primary budget surplus (excluding interest) of 3.5% of GDP by 2018 and maintain it for decades. Ms. Lagarde’s letter described that as “higher than what we consider economically and socially sustainable.”

But German officials rule out cutting Greece’s primary-surplus target to only 1.5% of GDP as the IMF recommends. Lowering the budget target would require major debt forgiveness, so that Greece’s debt doesn’t spiral even higher.

Germany is currently open to only minimal changes to Greece’s debt burden. Although Germany’s Social Democrats, the junior partner in Chancellor Angela Merkel’s coalition, said on Saturday that debt relief is inevitable, the chancellor’s conservatives remain opposed.

Revisions to the bailout agreement would need approval from Germany’s parliament, the Bundestag. Ms. Merkel and her finance minister, Wolfgang Schäuble, want to avoid a controversial debate in the Bundestag about major new concessions for Greece, which could lead to a rebellion among conservative lawmakers and further aid the rise of the upstart populist party AfD, which opposes eurozone bailouts.