Pressure mounted on Greece as U.S. and European officials called on the government to reach a deal with its creditors and the European Central Bank granted the nation’s cash-strapped banks only a small increase in emergency funds.
Prime Minister Alexis Tsipras’ administration will submit a request to the euro area for a six-month loan extension on Thursday, a day later than originally planned, according to a government official. ECB policy makers on Wednesday set Emergency Liquidity Assistance for Greek banks at 68.5 billion euros ($78 billion), up from 65 billion euros, a euro-area central-bank official said. Both officials asked not to be identified because the matters are private.
Greece has been at odds with other euro-area governments over the formula needed to extend the country’s 240 billion-euro rescue beyond its expiry at the end of February. The country risks being left without a financial backstop and on course to default on some of its liabilities as early as next month if it doesn’t reach a creditor accord.
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 that without an accord “we will enter uncharted waters, where there are great risks for the Greeks, first and foremost.”
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 intermediate 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 on 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. Varoufakis said he believes finance ministers will approve a Greek proposal by teleconference on that day, Athens News Agency reported on Wednesday.
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.
The ECB’s decision at its Governing Council meeting to increase the ELA ceiling by just 3.5 billion euros sends a signal that a political deal is needed to halt deposit outflows at Greek banks, the euro-area central-bank official said. It is intended to cover the temporary liquidity needs of Greek lenders, and not to provide cash that can be used to finance the government through purchases of treasury bills, the official said.
While ELA is provided by national central banks at their own risk, the ECB can set limits or curtail it completely. The cash is supposed to be for solvent financial institutions facing temporary liquidity problems. The Governing Council reviews the use of the measure every two weeks.
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 euro pared its losses after the ECB’s decision, and was down 0.1 percent at $1.1401 at 9:37 p.m. Frankfurt time. European stocks earlier rose to a seven-year high on optimism a compromise will be reached. Greek stocks advanced for the first time in three days.
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.
Varoufakis said during the Feb. 16 Eurogroup that the government won’t take any unilateral actions which would derail the budget. He wants 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.
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.
“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.”
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