Greece will submit a request to the eurozone to extend a ‘loan agreement’ for up to six months but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout.
The move, confirmed by an official spokesman, is an attempt by the new leftist-led government of Prime Minister Alexis Tsipras to keep a financial lifeline for an interim period while sidestepping tough austerity conditions in the EU/IMF programme.
An EU source said whether finance ministers of the 19-nation currency bloc, who rejected such ideas at a meeting on Monday, accepted the request as a basis to resume negotiations would depend on how it was formulated. A spokesman for the Eurogroup said no request had been received so far.
Hardline German Finance Minister Wolfgang Schäeuble poured scorn on the Greek gambit, telling broadcaster ZDF on Tuesday evening: “It’s not about extending a credit programme but about whether this bailout programme will be fulfilled, yes or no.”
There were protests across Europe supporting the moves made by Greece
However, German Economy Minister Sigmar Gabriel, leader of the Social Democratic junior partners in conservative Chancellor Angela Merkel’s coalition, welcomed what he called the signal from the Greek government that it was ready to negotiate.
With Greece’s agreement with the eurozone due to expire on February 28, Tsipras said talks were at a crucial stage and his demands for an end to austerity were winning wide support.
“There were protests across Europe supporting the moves made by Greece and we have managed for the first time through contacts with foreign leaders to create a positive stance on our requests,” he said at a televised meeting with President Karolos Papoulias.
EU officials said intensive formal and informal consultations were under way between Athens, the Eurogroup and the European Commission, with Italy and France also involved in the search for a compromise.
Germany and other eurozone countries were standing firm on their insistence that there can be no roll back of reforms already implemented under the bailout and that Greece will have to repay all it has borrowed, they said.
Greek bond yields fell sharply and shares rallied after government spokesman Gabriel Sakellaridis confirmed Athens would send a formal application yesterday.
“Let’s wait today for the request for an extension of the loan agreement to be submitted by Finance Minister (Yanis) Varoufakis,” he told Antenna TV yesterday, adding: “We will not back down on certain points that we consider red lines. The (bailout) memorandum died on January 25.”
That was the day Greek voters elected a government led by Tsipras’s hard left Syriza party, which had promised to scrap the €240 billion bailout, reverse austerity measures and end cooperation with the hated ‘troika’ of inspectors from the Commission, the European Central Bank and the IMF.
Commission President Jean-Claude Juncker was quoted by a German magazine as saying he was collaborating with the head of the Eurogroup to find a solution.
“I am working together with Eurogroup President Jeroen Dijsselbloem to achieve an extension of the existing programme, in order to bridge the time until summer,” he told WirtschaftsWoche in an interview published yesterday.
The ECB’s governing council met yesterday in Frankfurt and decided to extend and increase emergency lending assistance to Greece’s banks, plagued by deposit withdrawals.
Germany’s Bundesbank was leading opposition to any increase in the funding by the Greek central bank, people familiar with the situation told Reuters.
Without added liquidity, the banks would face a tightening squeeze as savers withdraw money, forcing Greece to introduce capital controls if there is no deal.
A source close to the Greek government said the loan request would be based on a text drawn up earlier this week by EU Economics Commissioner Pierre Moscovici, which was discarded by eurozone finance ministers when they met on Monday.
The Moscovici draft would also have committed Greece not to take unilateral steps to reverse measures implemented under the bailout, but Tsipras told Syriza lawmakers on Tuesday he would hasten legislation to scrap labour market deregulation.
With several eurozone countries needing parliamentary ratification of any change or extension, time is running short.
Dijsselbloem has said Greece must request an extension of the existing bailout by the weekend or the programme will expire at the end of this month. Greece could then run out of money within weeks since it has to make hefty repayments to the IMF in March.
As the deadline approaches, several European leaders called Tsipras to seek a solution, including Italian Prime Minister Matteo Renzi, French President François Hollande and Cypriot President Nicos Anastasiades, as well as Juncker.