European Commission President Jean-Claude Juncker’s 11th-hour effort to strike a deal with Greece on Monday was parried by euro-area finance ministers who sought to extend an austerity program in exchange for financial support.
Talks in Brussels ended abruptly and Greek Finance Minister Yanis Varoufakis claimed a bait-and-switch, saying Juncker’s commission offered a path forward that finance ministers then refused to put on the table. Instead, Dutch Finance Minister Jeroen Dijsselbloem offered a different statement tying Greece to its current agreement. Varoufakis rejected that proposal out of hand, and the euro weakened on the impasse.
Time is running out: The current aid agreement expires at the end of February. Failure to reach an accord could see Greece stumble out of the euro, and while Europe’s defenses are stronger than when the country flirted with exit from the single currency three years ago, a departure could ultimately trigger a flight from risk, bank runs and a downturn in European demand.
According to seven European officials with direct knowledge of the talks, the meeting quickly unraveled, sending the euro lower. The 19-nation euro lost 0.3 per cent to $1.1355 on Monday, while Greece’s ASE Index fell 3.8 per cent.
Dijsselbloem, who leads the finance ministers’ group, eventually halted the proceedings, saying ministers could reconvene on Friday if there’s a breakthrough.
“The next step has to come from the Greek authorities,” Dijsselbloem told reporters. “They have to make up their minds whether they will ask for an extension.”
Varoufakis said Greece had no choice but to refuse the statement on offer. “In the history of the European Union nothing good has ever come out of ultimatum,” he told reporters after the meeting.
Greece is willing to extend the current aid program as long it’s done on the right terms, Varoufakis said. Prime Minister Alexis Tsipras’s government will now return to the bargaining table and “we are ready and willing to do whatever it takes to reach an honorable agreement over the next two days,” he said.
Monday’s impasse comes a day after Juncker took a personal stake in the Greek negotiations. Tsipras requested a call with Juncker that took place as the commission chief made a “last- ditch effort” to find common ground, an EU official said Sunday. Without a deal, Greece could run out of money by the end of March, forcing Tsipras to consider abandoning his promises to the electorate or even leaving the single currency.
Greek bond yields are being whiplashed as investors try to gauge progress. Yields on Greek three-year notes rose 174 basis points, or 1.74 percentage points, to 17.58 per cent, after tumbling 220 basis points on Friday. Greece’s bonds had rallied last week as officials signaled a willingness to compromise.
Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.
Moscovici, speaking after the meeting, called on euro-area finance ministers to be “logical, not ideological” as negotiations continue. He urged Greece to request an extension and said concessions so far leave ample room for a deal.
“We both agreed that it could be possible to keep 70 per cent of the current program and to replace measures, but which have to be fully financed, up to 30 per cent” of current requirements, Moscovici said. “Thirty percent is not a minor room for politics.”
From Athens, the Greek government lashed out at Dijsselbloem’s demands, saying it was “absurd” and “unacceptable” to ask the country to request an extension.
Euro-area officials focused on the terms of the previous bailouts “are wasting their time,” the Greek statement said. “The insistence of some circles that the new government enforce the memorandum is absurd and unacceptable.”
Austrian Finance Minister Hans-Joerg Schelling said euro- area nations must be fully on board with any aid pledges made on behalf of their taxpayers, citing public resentment toward Tsipras’s election promises.
“It’s unacceptable that Greece raises pensions funded by the other countries even as in other countries’ pensions may be just half of what’s paid out in Greece,” he said.
Greece has so far been promised 240 billion-euro ($274 billion) under two bailouts. Any deal might have set the stage for a follow-on aid program or credit line that would maintain oversight by the European Commission, the ECB and the International Monetary Fund.
IMF Managing Director Christine Lagarde said Greece will need to follow the rules to tap into more of its bailout. Any review would take weeks, if not months, to see if Greece could qualify for another aid disbursement, she said.
Dijsselbloem said flexibility “could commence immediately” if the Greeks ask to extend the current program. He said talks can’t take place if there’s no program or if certain areas are seen as off-limits before talks start.
“Within the program there is room to discuss,” Dijsselbloem said. As for any funds from the bailouts so far unused, “if the program expires, the money simply flows back,” he said.
*Bloomberg