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Tags: greece | europe | debt | germany

US Joins EU Pressing Greece to Reach Deal or Face Hardship

Wednesday, 18 February 2015 02:17 PM EST

Pressure mounted on Greece as U.S. and European officials called on Prime Minister Alexis Tsipras’ government to reach a deal with international creditors or face the consequences.

Greece will submit a request for a six-month loan extension to the euro-area Thursday, a day later than originally planned, according to a government official. Documents outlining the government’s stance during two closed-door meetings of the currency bloc’s finance ministers over the past week showed Athens is still seeking to radically alter the terms of the bailout agreement.

U.S. Treasury Secretary Jacob J. Lew warned in a call with Greek Finance Minister Yanis Varoufakis that failure to strike a compromise would bring immediate hardship to Europe’s most-indebted state. French Finance Minister Michel Sapin said without an accord “we will enter uncharted waters, where there are great risks for the Greeks, first and foremost.”

Greece and euro-area members have been at odds over the formula needed to extend the country’s 240 billion-euro ($272 billion) rescue beyond its end of February expiry. The country risks being left without a financial backstop and on course to default on some of its liabilities as early as next month, without a creditor accord.

Budget Surplus

The lenders want Varoufakis to request an extension to the current bailout deal, which is tied to economic reforms and fiscal prudence in return for aid. Tsipras is seeking an intermediary agreement, followed by a new accord that would allow his government to disassociate from budgetary measures blamed for the country’s economic slump.

Varoufakis told his counterparts Feb. 16 that Greece wants to maintain a budget surplus before interest payments equal to 1.5 percent of gross domestic product, less than half the target set in the country’s bailout program, according to the released transcripts of presentations. He also said Greece wants to halt the privatization program and opposes labor market reforms envisaged in the bailout.

Jeroen Dijsselbloem, head of the Eurogroup of euro-area finance ministers, gave Varoufakis until Friday to request a bailout extension.

The Eurogroup is unlikely to accept any Greek government proposal for a loan extension unless it proposes “specific measures it will take while that extension is in place,” David Mackie, chief European economist at JPMorgan Chase & Co., wrote in a client note.

Market Optimism

European stocks rose to a seven-year high on optimism a compromise will be reached. Greek stocks also advanced for the first time in three days. The euro fell 0.6 percent to $1.1339 as of 8:29 p.m. in Athens.

Greek government bonds climbed for the first time in three days. The three-year yield dropped 117 basis points, or 1.17 percentage point, to 17.07 percent. That compares with 21.1 percent last week, the highest since the debt started trading again last year, and a record 128 percent in March 2012.

An index of Greece debt known as the Bloomberg Greece Sovereign Bond Index shows confidence remains well above the worst levels of pessimism during the past five years, as the current value of 88.48 is five times the low of 17.45 June 1, 2012.

German Finance Minister Wolfgang Schaeuble signaled the Greek request may not be enough, drawing attention to an issue of semantics that also has legal and policy implications for Germany, the biggest contributor to aid and the chief proponent of economic and fiscal measures in return.

Unilateral Actions

“It’s not about an extension of the loan program, it’s about whether this program is fulfilled, yes or no,” Schaeuble told German broadcaster ZDF late Tuesday. Estonian Finance Minister Maris Lauri pressured Greece to apply for an extension to the current program, including its terms. German Chancellor Angela Merkel said at a CDU party event in Demmin in northern Germany that “solidarity is no one-way street.”

Varoufakis said during the Feb. 16 Eurogroup that the government won’t take any unilateral actions which would derail the budget. The government seeks to collect an additional 5.5 billion euros by combating tax evasion and corruption and also wants backing on the government’s pledge to halt foreclosures of primary residences. Greece is seeking to extend the period for which bailout funds are available until late August, with minimum conditions attached.

Uncertainty over the outcome of Greece’s dispute with euro area member states has triggered deposit withdrawals of about 20 billion euros from Greek banks since December. The liquidity squeeze is exacerbated by the fact that Greek lenders aren’t able to use their junk-rated collateral to benefit from the European Central Bank’s regular financing operations if the country doesn’t implement its bailout program.

Their only lifeline is the Emergency Liquidity Assistance extended by the Bank of Greece, which can be vetoed by the ECB. Greece’s central bank Governor Yannis Stournaras may seek to increase the ELA allowance for his country’s banks above the current 65 billion euros ceiling, at an ECB meeting in Frankfurt starting Wednesday.

© Copyright 2023 Bloomberg News. All rights reserved.

Pressure mounted on Greece as U.S. and European officials called on Prime Minister Alexis Tsipras' government to reach a deal with international creditors or face the consequences.
greece, europe, debt, germany
Wednesday, 18 February 2015 02:17 PM
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