Germany Rejects Loan Request Saying Greece Must Meet Conditions

Updated on
Germany Rejects Greece’s Proposal: What Comes Next?

Germany rebuffed Greece’s request for an extension of its aid program as euro-area finance ministers prepare to meet to avert a cash crunch for the region’s most-indebted nation.

The Greek proposal “doesn’t meet the criteria agreed upon in the Eurogroup on Monday,” German Finance Ministry spokesman Martin Jaeger said in an e-mailed statement. “In truth, it aims at bridge financing without meeting the requirements” of the rescue program. European Commission Spokesman Margaritis Schinas moments earlier had said the Greek letter could be the basis for a “reasonable compromise.”

With the Greek state and its banks shut out of financial markets and dependent on emergency aid to stay afloat, Prime Minister Alexis Tsipras is retreating from his pledges to end austerity as the country’s creditors tighten the financial vise. While he’s not yet gone far enough to satisfy Germany, Greek bonds held on to earlier gains as a spokeswoman said Finance Minister Wolfgang Schaeuble still plans to meet his euro-region counterparts in Brussels on Friday.

“No agreement would lead Greece to default,” Malta’s Finance Minister Edward Scicluna said in an interview. “Once you default, it’s a terrible thing.”

Bond Gains

While the euro lost 0.1 percent, Greek bonds rose, with the yield on the three-year notes down 28 basis points at 17.09 percent at 5:33 p.m. in Athens. That compares with a record 128 percent in March 2012. Greek stocks advanced for a second day, with the Athens Stock Exchange benchmark up 1.1 percent.

An index of Greek debt known as the Bloomberg Greece Sovereign Bond Index also shows confidence remains well above the worst levels of pessimism during the past five years. The current value of 90.05 is five times the low of 17.45 June 1, 2012. The gauge peaked at 118.9 in August.

In a letter to fellow euro member states, Greek Finance Minister Yanis Varoufakis offered to work for the “successful conclusion and review” of the current financing agreement with creditors and committed not to take any unilateral action and fully fund any new measure. A Greek government official said the government didn’t ask for an extension of the bailout agreement, only for the loan protection to be carried over for six months.

Greek Goals

Varoufakis said he wants the European Central Bank to re-introduce a waiver allowing its debt to be used as collateral in refinancing operations as a result of the extension. That would ease the financial restrictions that have helped wring concessions from Tsipras. Without a financial backstop, Greece is on course to default on some of its liabilities as early as next month.

Euro-region finance ministers will make a “detailed assessment” of the request and formulate a response, Schinas said at a press conference in Brussels Thursday. Jeroen Dijsselbloem, who chairs meetings of the 19 euro-area finance ministers, and European Commission President Jean-Claude Juncker teamed up together in talks with Tsipras Wednesday, before the request was made, an EU official said.

Two euro-area officials said the letter was generally positive, covering many of the issues outstanding. At the same time, it fails to address aspects of Greece’s fiscal path which will need to be clarified, the officials said, asking not to be identified because the letter and deliberations are private.

“Greece has moved, but not yet enough,” Holger Schmieding, chief economist at Berenberg Bank in London, said by e-mail. “The Greek request hence invites the interpretation that it wants to extend the assistance agreement solely as a basis for the ECB to keep Greece afloat.”

Flexibility

Varoufakis said the extension will also allow Greece to agree on supervision by the European Union, the ECB and the International Monetary Fund and give officials time to negotiate a new deal to allow his country to prosper within the currency union, while making “best use of given flexibility in the current arrangement.”

Varoufakis had 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 transcripts of presentations. He also said Greece wants to scale down the privatization program and opposes labor market reforms envisaged in the bailout.

Finance ministers have two choices tomorrow, either reject or accept Greece’s extension request, a Greek government official said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE