Friday 24 November 2017

Greece set to submit loan extension request today

Jeroen Dijsselbloem, the chairman of the Eurogroup.
Jeroen Dijsselbloem, the chairman of the Eurogroup.
Colm Kelpie

Colm Kelpie

GREECE looks poised to seek a six-month loan extension today with attention now focused on whether Eurozone finance ministers, who have been pushing an extension of the current bailout, will agree to cede ground.

Crunch talks collapsed in Brussels on Monday night because Athens wouldn't accept a call for an extension to its bailout programme.

The country was given just days to decide whether it wished to alter course and request an extension but the new Greek government has been strongly resisting the move.

Athens is now expected to formally request an extension to its loan arrangements, to avoid running out of cash, and not an extension of the austerity policies imposed under its bailout.

Yesterday it released documents which it provided to Eurozone finance ministers for the two most recent, failed Eurogroup meetings, outlining how it wanted to overhaul its bailout.

Unlike three years ago when fears Greece could crash out of the euro panicked investors, markets are holding steady.

In fact, European stocks had risen to a seven-year high by mid-afternoon yesterday amid investor speculation that the country will be able to reach a compromise. Greek bond yields fell sharply, but rose marginally later in the day yesterday.

Bloomberg quoted a Greek government official yesterday as saying the country would submit its request for a six-month loan extension today - a day later than originally planned.

But there was little sign of a softening in the stance from Germany, with Finance Minister Wolfgang Schaeuble saying: "It's not about extending a credit programme but about whether this bailout programme will be fulfilled, yes or no."

Germany's economy minister Sigmar Gabriel, however, welcomed what he referred to as a signal from Greece that it was ready to negotiate. It is understood that the loan request would be based on a text drawn up earlier this week by EU Economics Commissioner Pierre Moscovici, which was discarded by Eurozone finance ministers when they met on Monday.

Discussions allegedly ended on Monday night after Greek negotiators settled on a draft agreement with the European Commission, only for the text to be replaced with alternative wording when it came to signing the deal.

Meanwhile, Greece yesterday released a 30-page document provided to finance ministers reiterating its pledge to "take unprecedented action to fight corruption, tax evasion and ensure tax enforceability, with an emphasis on transfer pricing in large corporates active abroad".

The restoration of the country's minimum wage will be phased in gradually to 2012 levels from September, the documents stated, while the country will run a primary surplus of a maximum of 1.5pc of GDP.

It said the required surplus of 4.5pc of GDP "year in-year-out has no historical precedent in any situation resembling that of Greece today".

"It will simply be not possible for our country to grow if we remain on the growth-sapping austerity path imposed on our economy," the documents said.

The Greek government, led by far-left party Syriza, came to power last month on a promise to end austerity measures and to renegotiate the bailout deal.

It has resisted calls for an extension of the bailout, instead preferring so-called bridging loans to avert a short-term cash crisis and to allow it time to potentially renegotiate the current deal on less onerous terms.

Eurogroup chairman Jeroen Dijsselbloem said on Monday that Greece must request an extension of the existing bailout by Friday or the programme will expire at the end of this month.

Greek crisis Q&A

Where now for Greece?

Athens, which has been resisting calls to extend its current bailout programme, is expected to request an extension of its loan arrangement today, to avoid running out of cash. The country’s bailout concludes at the end of the month.

What are the main obstacles to a deal?

Both sides – the Eurozone establishment and Germany in particular – and Greece have maintained entrenched positions. Greece wants to renegotiate its bailout, and, to avoid a short-term cash crisis, wants to use an alternative source of funding on a bridge basis. The Eurozone has been ruling this out, saying the best way forward is to simply extend the current bailout programme. Athens is saying no, because that would mean an extension of austerity, which it rejects.

Will this reported loan extension deal be accepted by Eurozone policymakers?

That’s hard to say. Yesterday, Germany stuck to its tough line. Eurozone finance ministers may reconvene in Brussels, possibly as early as tomorrow, to discuss it if the extension is requested.

But, they may also say it’s not enough.

The markets, however, believe a compromise will be found.

And if it isn’t?

The powers that be won’t yet answer that question.

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