Greece 'blinks first' on bailout crisis but Germany stands its ground

18th February 2015, Comments 0 comments

Greece was expected Wednesday to make its first formal bid to resolve the bailout crisis by asking for a six-month loan extension, but the idea was swiftly shot down in advance by EU paymaster Germany.

Athens will send a letter to Jeroen Dijsselbloem, the head of the Eurogroup, requesting an extension on its European loan agreement while sidestepping the duties of a full-blown bailout, Greek public television said.

"We should extend the credit programme by a few months to have enough stability so that we can negotiate a new agreement between Greece and Europe," Greek Finance Minister Yanis Varoufakis told Germany's ZDF.

The olive branch lies in the wording: Greece's ruling Syriza party had sworn it would not apply for a bailout extension but request a bridging loan -- the word bridge has now been dropped, while extension is back on the table.

"Greece blinks first, sort of," Berenberg analyst Holger Schmieding said in a note.

The Athens move "comes with a snag," however: "it wants the money but rejects many of the strings attached to it. That is simply a non-starter."

And a spokesman for German Finance Minister Wolfgang Schaeuble told reporters in Berlin that any extension of international loans to Greece was "inextricably" linked to reforms agreed by Athens under its current 240-billion-euro ($270-billion) bailout.

"It can't and won't be the case that you go for an extension without the agreed reforms," he said.

- 'Margins for manouevre' -

Europe and Greece are racing to reach a deal to avoid a Greek exit from the eurozone, after talks in Brussels ended in acrimony on Monday with both sides digging in.

Prime Minister Alexis Tspiras said Tuesday Greece had been ready to sign up to a deal drafted by EU Economics Commissioner Pierre Moscovici which hinged on a loan to buy extra time for deeper negotiations -- but it had been thrown out by the Eurogroup.

The offer of a six-month, strings-free agreement was being seen as a bid to resurrect that deal.

Moscovici told Belgium radio Bel RTL there were "margins for manoeuvre," saying it was "very important we make all the necessary efforts to avoid a rupture which would be damaging for both parties".

But Schaeuble said Tuesday said that Athens wanted something for nothing, which was insulting to countries such as Ireland and Portugal that completed painful bailout programmes.

Tsipras and his government "should tell the Greeks the truth: there is no fast way out," he said.

Greece's radical left government has bitterly rejected any suggestion of prolonging a bailout programme which it says comes with fiscal obligations that have crippled the Greek economy.

But with the European portion of the bailout expiring at the end of February, Greece's creditors insist it needs extra financing to stave off the risk of a default and exit from the euro.

On Monday Dijsselbloem said Athens had until Friday to request an extension to the bailout.

Tsipras has fanned the debt crisis flames by announcing parliament will vote on a series of social reform bills which flout the bailout obligations on Friday, when the deadline falls.

Measures on the table include scrapping labour market deregulation, reversing an reform called for by Greece's creditors.

- 'Greece has given in' -

His refusal to play ball has raised concerns the European Central Bank could limit or even cut off Greece's access to emergency liquidity assistance (ELA) at a meeting later Wednesday.

The ECB increased the volume of emergency liquidity available to Greek banks last week to 65 billion euros according to reports, and could refuse to increase it any further creating difficulties for the banking sector.

Greece's parliament will elect a new president on Wednesday with Tsipras's candidate, former conservative minister Prokopis Pavlopoulos, needing 180 votes to secure this round.

It was parliament's failure to agree on a candidate at the presidential election in December which sparked early elections in January that ushered in the radical left Syriza party.

The chaos surrounding the debt talks has alarmed analysts, with economists at Commerzbank now predicting that a Greek exit from the euro was 50 percent likely.

Growing fears of a so-called "Grexit" hammered Greek stocks on Tuesday. But markets rallied across the board and the euro held up Wednesday on hopes of a deal settlement.

© 2015 AFP

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