Athens’ chances of finding itself without an EU financial backstop in one week will come down to a bitter face-off in Brussels on Friday between the Greek and German finance ministers after Berlin rejected Greece’s request to extend its €172bn rescue by six months. / By FT
The German rebuff came just hours after Yanis Varoufakis, the Greek finance minister, reversed his government’s long-held promise to kill the current bailout by submitting a letter to his fellow ministers formally requesting the additional time and vowing to bring the programme to a “successful conclusion”.
But the letter, obtained by the Financial Times, also said Mr Varoufakis’s request was subject to finding “mutually acceptable financial and administrative terms”, part of a series of clauses Berlin told counterparts amounted to “a Trojan horse” designed by Athens to change the conditions it must meet to receive €7.2bn in aid available for finishing the bailout.
“The letter from Athens is not a substantive proposal for a solution,” said Martin Jäger, spokesman for the German finance ministry. “In truth, it aims at bridge financing without fulfilling the demands of the programme.”
According to an official briefed on the talks, Germany took an even harder line in a pre-eurogroup meeting of finance ministry deputies on Thursday, calling on Athens to submit no more than a three-sentence letter requesting the extension, promising to complete the programme, and committing to negotiating any changes with bailout monitors.
In addition, the official said Berlin wanted to take back €10.9bn in bailout funds sitting unused in Greece’s bank bailout facility — money some EU officials believe could be needed if its financial institutions further weakened. Berlin argued Greek banks passed an ECB-administered stress test last year and no longer needed the funds.
Eurozone officials said they believed the differences could be bridged, noting Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup of his 18 counterparts, decided to hold Friday’s ministerial meeting in Brussels rather than by teleconference because of the need to forge a compromise.
One person briefed on the talks said an earlier version of the Greek letter was more in line with German demands to agree to all aspects of the current bailout, with limited “flexibility” to negotiate its terms once an extension deal is signed, before it was hardened in Athens.
In his maiden address to parliament as prime minister two weeks ago, Alexis Tsipras vowed not to accept an extension of the current bailout, insisting the new government was elected to end its economic and financial strictures, which already makes Mr Varoufakis’ letter a significant u-turn even without further concessions.
Without access to EU bailout funds, eurozone officials fear the Greek government could run out of cash as early as next month, forcing it to either cut spending on salaries and pensions or default on debt payments. The end of the EU programme also means Athens loses €10.9bn in aid for Greek banks, which officials fear could exacerbate the large-scale deposit withdrawals seen in recent weeks
In a sign of how concerned EU authorities are about the Greek banking system, the European Central Bank’s governing council late Wednesday approved only €3.3bn in new emergency funding to Greek lenders — even though the Bank of Greece had requested €10bn earlier in the week.
Some members of the governing council believe that if a solution is not agreed between Athens and the eurogroup by the end of the week, the ECB might then have to review the solvency of Greek banks. The approval of the latest increase lasts for two weeks, but the lending programme, known as Emergency Liquidity Assistance, can be reviewed at any time.
A two-thirds majority of the governing council’s 21 voting members would be needed to end the ELA — which would in effect force Greece to adopt capital controls or quit the currency area.
Germany’s rejection of the Greek request cut short a market rally in Greece that had pushed short-term borrowing costs close to a month-low.
Yields surged back up above 17 per cent while shares on the Athens stock exchange slid 5.5 per cent in early afternoon trading.
However market commentators say that even if Athens does not meet its obligations and leaves the eurozone, contagion will be limited.
“The eurozone rescue architecture is more robust than during the last Grexit scare in 2012,” said S&P, the credit rating agency. “Added to this, Greece’s links with financial markets have been sufficiently reduced to make such a direct contagion less likely.”
Across European markets, Greece stands out as a lone risk. An index of the 300 largest companies in the eurozone rose slightly on Thursday, while borrowing costs of European countries including Spain and Italy fell.
Additional reporting by Claire Jones in Frankfurt and Elaine Moore in London.
But the Greek government said it would not revise its letter, arguing the eurogroup had just two choices: accept or reject the Greek request. “This will show who wants to find a solution and who doesn’t,” said a Greek official.
