Greece Poised to Request Six-Month Loan Extension

Updated on

Greece Said to Request Six-Month Extension

Greece may request an extension of its loan agreement for six months, according to a person familiar with the matter, a step that could ease a standoff with creditors over the country’s future financing.

Prime Minister Alexis Tsipras’s government intends to make the request on Wednesday, the person told reporters in Brussels, asking not to be named as the deliberations are private. Talks are continuing between Greece and its international creditors on the conditions that would be attached to the extension of the loan accord, the person said.

Greece and euro-area members have been at odds over the formula needed to extend the country’s 240 billion-euro ($274 billion) rescue beyond its end of February expiry. Finance-minister level talks broke up on Monday evening in Brussels without another round being scheduled.

“Posturing aside, the differences between the positions of the Greek government and the euro area are not so difficult to bridge,” George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business, said by phone. “And both sides share a common interest in preventing the worst.”

‘Conditions Fulfilled’

German Finance Minister Wolfgang Schaeuble signaled it may not be enough, drawing attention to an issue of semantics that also has legal and policy implications for Germany, the biggest country contributor to Greece's aid since 2010 and the chief proponent of economic and fiscal measures in return.

“It’s not about an extension of the loan program, it’s about whether this program is fulfilled, yes or no,” Schaeuble told German broadcaster ZDF late Tuesday. “I don’t have any new information, but there is no loan agreement, it’s an assistance program. And in this seemingly unimportant detail lies the key: Greece would like to receive credit, but not fulfill the conditions to allow Greece to recover economically.”

WHile the euro fell 0.4 percent to $1.1367 as of 12:34 p.m. in Brussels, Greek government bonds climbed for the first time in three days. The three-year yield dropped 112 basis points, or 1.12 percentage point, to 17.12 percent.

An index of Greece debt known as the Bloomberg Greece Sovereign Bond Index shows confidence remains well above the worst pessimism during the past five years as the current value of 88.48 is five times the low of 17.45 June 1, 2012.

A spokeswoman for Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area counterparts, said that they were waiting for the Greek side to make a decision. Greece needs to ask for an extension even if its political leaders don’t want to call it that, Dijsselbloem said in Brussels on Monday.

New Accord

The lenders want an arrangement that resembles the existing deal, including economic reforms and fiscal prudence in return for aid, while Tsipras is seeking a new accord that would allow him to disassociate himself from budgetary measures enacted by previous governments which he blames for Greece’s economic slump.

A Greek government official said by e-mail that Greece will not accept ultimatums, and won’t ask for an extension to the bailout program. Rather, it is examining the possibility of asking for an extension to the loan agreement, which it differentiates from the existing program terms, the official said.

Tsipras, addressing lawmakers of his Syriza party in Athens Tuesday, said that a draft statement his government was asked to endorse in Brussels the previous day was “provocative,” and that prompted the collapse in the talks.

“They were asking us to implement all the measures of the bailout agreement, taking over from the point that the previous government left them, and proceed with moves like privatizations and accept unbearable primary budget surpluses,” Tsipras said.

Program Flexibility

Even as Greece’s anti-bailout government says that it remains committed to balanced budgets, it wants to lower the current target of a 3 percent of gross domestic product surplus before interest payments by half. European officials including Commissioner for Economic Affairs Pierre Moscovici have indicated that there may be some room for flexibility within the margins of the current rescue program for Tsipras’s government to pursue its policies. They still insist though that Greece first agree to extend the agreement.

“If we want to avoid going into unknown territory, the only way is to have some time and some tranquility,” French Finance Minister Michel Sapin told reporters in Brussels Tuesday. “That means the prolongation of the program. It’s the only legal tool available.”

‘Only Chance’

Terminology is not the only problem. Greece’s coalition has said that it wants to halt some state asset sales, raise the minimum wage and low pensions, rehire public servants who were dismissed and restore more rigid rules in the country’s labor market. The country’s creditors say that Greece hasn’t secured financing for those pledges, which would also make the country’s economy less competitive.

Ingrid Arndt-Brauer, a lawmaker who chairs the cross-party Finance Committee in the German parliament, the Bundestag, said the commitment to an extension “was the only chance left open to Greece” and one that “must be grasped.”

“Certain things will necessarily be tied to a six-month extension: the institutions must play a role and the conditions of the current help must apply,” she said by phone. “Then the Bundestag can approve the extension and the six months can be used to create a new contract with other conditions.”