Eurozone officials are increasingly worried that Greece’s €172bn bailout will expire at the end of the month and potentially plunge it into chaos, after a series of meetings with the new Greek government convinced them Athens is unaware of how perilous its financial situation has become.
Yanis Varoufakis, the new Greek finance minister, embarked on a tour of European capitals, starting with Paris on Sunday, intended to garner support for a renegotiation of its bailout and debt burden.
EU officials were dismayed on Friday when Mr Varoufakis rejected a bailout extension — and refused to co-operate with the “troika” of international creditors. It capped a tumultuous first week in power for the anti-austerity government, whose announcements reversing spending cuts and privatisation roiled markets and wiped 40 per cent off the value of Greek banks.
There was some relief when Alexis Tsipras, Greece’s radical leftwing prime minister, struck a more emollient tone over the weekend, saying he was not “seeking conflict” and hoped to “reach a mutually beneficial agreement”. He also revealed he had called Mario Draghi, president of the European Central Bank, to reassure him of his intention to reach a deal.
But patience in Greece’s creditor countries, particularly Germany, is running thin. Martin Schulz, the president of the European parliament and a German Social Democrat, urged Greece to go easy with its repeated attacks on Berlin. “Bashing the Germans might go down well in some quarters. But it is also short-sighted and gets us nowhere,” he told Welt am Sonntag newspaper. On Saturday, Chancellor Angela Merkel, bluntly warned Athens not to expect “a further haircut”.
German officials are also annoyed that Mr Varoufakis, who visits London on Monday and then Rome, has made no contact with Berlin.
Officials familiar with the conversations between eurozone policy makers and Athens said they were no wiser about what sort of international financial help Greece was seeking or how it intended to negotiate. Eurozone finance ministers want to discuss Greece’s needs at their next meeting on February 16 — if not sooner, by telephone.
The bailout programme is due to expire on February 28. If it is not renewed, Greece will for the first time in five years be left without an EU financial backstop. Because the International Monetary Fund is unlikely to distribute funds without the EU’s participation, Athens could lack access to emergency funding to repay billions of euros in debt due in the coming months.
EU officials believe the country could eke out €4.3bn in payments owed to the IMF next month, but will run into a wall at the beginning of June when the first of two bonds worth more than €3bn must be paid. Without bailout funding, and an ongoing sell-off in the private bond markets, Athens would be forced to default.
Of more concern to many officials is the Greek banking system, which after massive outflows of deposits, is relying on cheap ECB loans to fund day-to-day operations. ECB officials over the weekend made it clear that if the programme expires at the end of February, the central bank would be forced to cut off their liquidity loans.
But they have not clarified whether Greek banks could still access back-up central bank financing, known as emergency liquidity assistance. Although technically loaned by the Greek central bank, it must be approved by the ECB which has been cagey on whether such lending would be allowed.
Since the outbreak of the eurozone crisis, Greece’s banking system has always been seen as the most likely route to an “accidental” Greek exit from the euro. Without ELA lending, Athens would probably have to print its own currency to keep its banking system running.
Mr Draghi has told colleagues he is planning to drive a hard bargain on bank liquidity — a similar strategy used with Cyprus in March 2013, which forced Nicosia to accept onerous bailout terms. But Mr Draghi is also wary of unelected central bankers taking a decision that would force Greece from the euro.
The French government is hoping to act as broker between a defiant Athens and its increasingly exasperated Berlin.
“France is well placed to be the link … between this Europe of budgetary rigour and this Europe of the south and in particular Greece, which is suffering,” Michel Sapin, finance minister, said last week. But Paris, like Berlin, has ruled out the debt cancellation demanded by Athens, underlining how few allies the new Greek government has.
source:ft.com
STUDIO 3 NEWCASTLE AUSTRALIA 