German-Led Bloc Willing to Let Greece Leave Euro: Malta

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Germany Ramps Up Pressure on Greece

Germany and its allies are ready to let Greece leave the euro unless Prime Minister Alexis Tsipras accepts the conditions required to extend his country’s financial support, according to Malta’s finance minister, Edward Scicluna.

Greece’s creditors are cranking up the pressure on Tsipras as he seeks a deal to prevent his country defaulting on its obligations as early as next month. By bowing to German demands, the premier risks a domestic backlash from voters and party members whom he’s promised an end to austerity.

“Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said in an interview. “They’ve now reached a point where they will tell Greece ‘if you really want to leave, leave.’”

Talks between euro-region finance ministers in Brussels Friday aimed at agreeing an extension of Greece’s aid program were pushed back by an hour and a half, the group’s chairman, Dutch Finance Minister Jeroen Dijsselbloem, said on Twitter. The meeting will begin at 4:30 p.m. Brussels time and Dijsselbloem will make a statement at 3 p.m.

In a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Greek Finance Minister Yanis Varoufakis said he would accept the financial and procedural conditions of the existing deal while asking for negotiations on other elements.

German Position

Germany’s Finance Ministry almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Tsipras and German Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness,” Varoufakis said in an interview Friday with The Telegraph. “But what we cannot accept is that the fiscal adjustment, agreed by the last government, be carried through just because the rules say so.”

Investors are pricing in a positive outcome to the Eurogroup meeting with Greek bonds and stocks rising for a third day. The yield on the three-year notes fell 83 basis points to 16.23 percent at 2:23 p.m. in Athens. That compares with a record 128 percent in March 2012. The Athens Stock Exchange benchmark index advanced 0.2 percent.

U.S. Pressure

“Hopes for a compromise at today’s Eurogroup have been raised,” analysts including Nikos Koskoletos at Athens-based Eurobank Equities wrote in a note to clients on Friday. “The key stumbling block remains the clearer language regarding the conclusion of the current program, as demanded by Greece’s creditors, and more details regarding the attainment of fiscal targets.”

The Bloomberg Greece Sovereign Bond Index shows confidence remains well above the worst levels of pessimism during the past five years. The index, a market-value weighted measure of Greece’s bonds, was at 90.89 at Thursday’s close. That’s more than five times higher than the level reached in 2012.

The U.S. also weighed in to step up pressure on Greece and its European creditors to reach a debt accord. Treasury Secretary Jacob J. Lew talked Thursday with Varoufakis, French Finance Minister Michel Sapin and Dijsselbloem. Lew has also spoken to his German counterparts and officials at the European Commission and the International Monetary Fund.

Download: Bloomberg INTELLIGENCE: Greece and Europe - Feb. 20 (Audio)

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