Germany and Greece are heading into an emergency meeting with official creditors today with conflicting positions, setting the stage for a clash.
German Finance Minister Wolfgang Schaeuble rejected Greece’s call for a new debt accord, while Greece’s new Prime Minister Alexis Tsipras remained defiant, saying there is “no way back” for his government, and that he can’t condemn his people to more pain.
“We will not get a clean close to this crisis today,” Michael O’Sullivan, chief investment officer for the U.K. and Europe, the Middle East and Africa at Credit Suisse Private Banking in London, said in an interview on Bloomberg Television. “I think this will drag on. The Greeks have digested a record amount of austerity, so they’ll want some relief from that.”
The discord is renewing turmoil in Greek markets after they were buoyed by optimism on Tuesday that there might be room to move toward an agreement. Greek government bonds fell, after rising yesterday for the first time in five days. Three-year notes yielded 21 percent, up 150 basis points. The benchmark Athens Stock Exchange Index tumbled as much as 4.2 percent.
Any accord would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its 240 billion-euro ($272 billion) lifeline. An impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and may put Europe’s most-indebted state’s euro membership in danger.
The euro area finance ministers’ meeting in Brussels tonight will include officials of the International Monetary Fund, the European Central Bank and the European Commission.
Tsipras told Greek lawmakers in parliament in a speech before a vote of confidence in parliament in the early hours of the morning that he wants an accord “that is in the mutual interest of Greece and its partners, one that will end punitive terms and the destruction of the Greek economy.” He won the vote by 162 to 137.
For his part, Schaeuble damped any expectations of a positive outcome for Greece at the meeting, saying there are no plans to discuss a new accord or give the country more time. He said in Istanbul yesterday after a meeting of finance chiefs from the Group of 20 that if Greece doesn’t want the final tranche of its current aid program, “it’s over.” Creditors “can’t negotiate about something new,” he said.
Deutsche Bundesbank President and European Central Bank Governing Council member Jens Weidmann said Greek efforts to get bridge financing through debt instruments are a non-starter.
Greek Finance Minister Yanis Varoufakis told parliament last night that the country wants to move away from its “disastrous bailout agreement,” adding that he was aware that that puts it at loggerheads with its euro-area partners.
“If you are not willing to even contemplate the prospect of a rupture, then you don’t really negotiate,” he said. In an interview published today in Germany’s Stern magazine, he said, “Greek debt cannot be repaid in the near future.”
Greece’s public debt stands at more than 320 billion euros, or about 175 percent of gross domestic product. It’s seeking a successor program focused on structural overhauls rather than fiscal measures.
“We need to negotiate the crucial issue of the debt terms, and repayment procedures to help our economy return to growth,” Tsipras told lawmakers in parliament.
Tsipras’s anti-austerity government has laid out a lengthy list of policy actions, including a gradual increase in the minimum wage and a boost to the threshold of tax-exempt income. The measures would breach the terms of the country’s emergency loans agreement with the euro area and the IMF.
“The Tsipras government still has a large distance to cover between expectations it had created and the reality on the ground,” said George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business. “Tsipras has given some first signs of moderation, but the distance is large and time is running out.”
Schaeuble said euro region finance ministers won’t negotiate a new program because there’s already a program in place, arrived at after “arduous” negotiations.
He also said media reporting that the Commission will give Greece six more months to reach an aid deal “has to be wrong” because he’s not aware of such a plan and the commission isn’t in charge of making such decisions.
‘Bridge to Nowhere’
Euro region finance ministers expect to get “binding” comments from Varoufakis on his government’s intentions on future aid requirements, the German minister said.
His comments came even after Greece offered compromises in a bid to push for a bridge plan to stave off a funding crunch and to buy time for negotiations to ease austerity demands.
“We have no hesitation to keep all parts of the current bailout agreement that won’t infect the new contract,” Varoufakis said.
Greece is seeking a 10 billion-euro bridge plan. Varoufakis will ask for an 8 billion-euro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek disbursement of 1.9 billion euros of profits that euro area-central banks made on their Greek bonds holdings.
“The bridge must be built by fiscal policy because it’s forbidden for monetary policy to finance states,” ECB’s Weidmann said in Istanbul in e-mailed response to questions on Tuesday. “The question of a bridge loan via T-bills has as a precondition, in my view, that it’s not a bridge to nowhere.”
German political leaders have said they will not extend more assistance to Greece without strings attached. German Chancellor Angela Merkel said in Washington on Monday that the existing aid programs are the basis for Greek talks.
“I’m waiting for Greece to come forward with a viable recommendation and then we’ll talk about it,” she said.
Greece is seeking an agreement that won’t involve new loans, and won’t mean additional costs for European taxpayers, Tsipras said.
“What is the alternative? President Obama asked German Chancellor Merkel and didn’t receive an answer,” he said.