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25th Aug 2019

Greece caves in, Germany plays hardball

  • Wolfgang Schaeuble: The game of chicken continues between Greece and Germany (Photo: World Economic Forum)

The Greek government on Thursday (19 February) submitted a request to extend the current bailout programme by six months, but Germany rejected the demand on the eve of a meeting of eurozone finance ministers (Eurogroup).

EU commission chief Jean-Claude Juncker was on the phone over the last few days both with Greek PM Alexis Tsipras and the head of the Eurogroup, Dutch finance minister Jeroen Dijsselbloem, as well as other "actors" in order to get the Greeks to submit the request, Juncker's spokesman said Thursday.

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"Juncker sees this letter as a positive sign that could pave the way for a reasonable compromise," EU commission spokesman Margaritis Schinas said, adding that it was now up to the Eurogroup to decide on the extension.

But a spokesman for the German finance ministry poured cold water on expectations for a swift deal on Friday.

"The letter from Athens does not offer a substantial proposal for a solution. In reality, it aims for a bridging loan without meeting the terms of the programme,” the spokesman said in a statement.

In Brussels, this is seen as tactical posturing before the Eurogroup.

"Of course this is pure tactics. And one might look at the difference between the German finance ministry and the German chancellery," one EU source said.

Sherpas of the national finance ministries and officials from the EU commission, the European Central Bank and the EU bailout fund (ESM) were set to meet on Thursday afternoon and analyse the Greek request, possibly also trying to formulate a draft statement for the Eurogroup on Friday.

Several drafts circulated ahead of the last Eurogroup, which ended in disagreement on Monday. Greek finance minister Yanis Varoufakis said he would have been willing to sign up to the draft prepared by the EU commission, which spoke of an extension of the "loan agreement", as opposed to the extension of the current bailout programme, as demanded by the Eurogroup.

Yet in his letter to Dijsselbloem on Thursday, Varoufakis seems to have backed down from that position and requested an extension of the "Master Financial Assistance Facility Agreement" signed in 2012 and extended for two months in December last year.

"The Greek authorities honour Greece's financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content," the letter, seen by Reuters, reads.

However, the letter speaks only vaguely of the reforms to be implemented - even though the bailout agreement clearly says that any disbursements will be made only after positive reviews by the creditors on the implementation of reforms.

The letter speaks of "agreeing to mutually acceptable financial and administrative terms" that will stabilise the Greek budget and "take into account the present economic situation".

It also refers to a "possible new Contract for Recovery and Growth" that the Greek government hopes to seal after the six-month extension is over - code for a third bailout.

What remains unclear is how far the discussions will go on Friday on what Greece needs to do in terms of reforms and possibly extra written commitments before the rest of the eurozone finance ministers are willing to approve the bailout extension.

Friday appears to be quite a fixed deadline, as the current bailout runs out on 28 February and four countries - Finland, Germany, Estonia and the Netherlands - require parliamentary approval of the extension before it can enter into force.

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