Greece’s bailout stalemate in Brussels

Brussels, Belgium – Greece’s failure to reach a deal with its European partners has exposed divisions between some of Europe’s largest economies and the region’s executive body when assessing how much leeway the new Athens government should be granted in its attempts to end years of harsh austerity.

Talks collapsed Monday evening in Brussels between Athens and its 18 fellow euro-area members over how to negotiate new terms for the country’s 172 billion euro ($195bn) rescue package.

But when negotiations ended, Greece’s outspoken Finance Minister Yanis Varoufakis told reporters that Europe’s economic commissioner, Pierre Moscovici, a former left-wing finance minister from France, had come to him with a “breakthrough” deal on how to resolve the impasse prior to the so-called “eurogroup” meeting of finance ministers.

Mr Moscovici presented me with a draft communique that I was perfectly happy to sign there and then.

by Yanis Varoufakis, finance minister of Greece

“Mr Moscovici presented me with a draft communique that I was perfectly happy to sign there and then. As it was, it was a communique that recognised Greece’s humanitarian crisis and spoke of an extension – or the need for the Greek government to apply for an extension – of the current loan agreement,” he said.

Such an elongation would lead to “a four-month intermediate programme as a transitional stage to a new contract for growth for Greece”.

‘Splendid document’

Varoufakis then explained when he arrived for talks alongside Germany’s powerful – and pro-austerity – Finance Minister Wolfgang Schaeuble, the proposition was quickly withdrawn and talks proceeded to collapse.

“Unfortunately that splendid document that I was prepared to sign there and then without a second thought was withdrawn minutes before the eurogroup began by the eurogroup’s president [Jeroen Dijsselbloem] and it was replaced with another document that took us not just back to last Thursday, but indeed it took us back to last Wednesday,” Varoufakis said, referring to a previous meeting between European finance ministers when both sides failed to agree on a joint statement.

The breakdown in talks now raises the distinct possibility that Greece could find itself with no financial support at the end of February. 

Eurogroup President Jeroen Dijsselbloem said after Monday’s failed talks that unless a deal is struck by Friday, parliaments in the region will not have enough time to approve a new agreement to extend the current bailout programme.

According to Dijsselbloem, euro area finance ministers were unanimous in thinking the only way forward for Greece is to request an extension to its current rescue package. 

“The general feeling in the eurogroup is still that the best way forward would be for the Greek authorities to seek an extension of the programme,” Dijsselbloem said at a press conference in Brussels.

“There was still no firm common ground on what such an adjustment in the programme could look like and how much of the programme would actually be carried forward by the Greek government,” Dijsselbloem continued.

Here lies the problem.

Failed new deal

Germany says the only way back to sustainable growth for Greece is a finely tuned national budget, and former bailout countries such as Spain, Portugal, and Ireland don’t want to see any special treatment offered to Athens.

But Greece wants a new deal with less austerity and is claiming the right to implement such a programme because of widespread support for the newly elected Syriza government in Athens.

Despite the widespread distaste for Greece’s message inside the eurogroup, it appears the European Commission under Jean-Claude Juncker is more prepared than others to offer Greece some breathing space.

“Different drafts were worked on by staff [at the commission] and he [Varoufakis] liked one, not another,” said a senior EU official with knowledge of the executive arm’s proposals to Greece, who spoke on condition of anonymity because he wasn’t authorised to talk to the press.

In a draft of the agreement put forward to Greece by Dijsselbloem and obtained by Al Jazeera, the eurogroup on Monday asked Greece to stick to the “existing built-in flexibility in the current programme”.

“The Greek authorities … will work in close agreement with its European partners, especially in the field of tax policy, privatisation, labour market reforms, financial sector and pensions,” the statement about the proposal that was rejected said.

Indeed, these are the very areas where Greece wants a new deal.

“It would be an act of subterfuge to promise to our partners that we are going to complete successfully a programme which we have challenged the logic of,” Varoufakis said after the talks.

There is now only a matter of days for both sides to come to an agreement.

Ultimatum

Dijsselbloem presented Greece with an ultimatum on Monday: Request an extension to the current rescue package or risk losing billions of euros in possible financial aid.

Greece is still owed 1.8 billion euros ($2bn) in loans and 10.9 billion euros ($12.4bn) in bonds inside the European Financial Stability Facility, as well as 1.9 billion euros ($2.16bn) in profits from government bonds from the ECB’s securities market programme.

Not getting its hands on this funding could spark a dangerous reaction from financial markets.

“If the deadline expires, the ECB could be forced to stop emergency loans for the Greek banks. Then, Greece would de facto cease to be a member of the monetary union,” Commerzbank’s Chief Economist Joerg Kraemer said following discussions in Brussels.

If that happens, then Greece could ultimately be forced into calling for a referendum on either accepting a new programme – or exiting the euro area all together.

Greece’s partners have on numerous occasions underlined that Greece returned to growth in 2014 and this acts as proof of how years of austerity is finally paying off. Real GDP is expected to rise to 3.6 percent in 2016 from 1.0 percent in 2014.

But Varoufakis offered a different interpretation of the figures on Monday. He said the only reason real GDP – which takes into account changes in prices – had gone up was because of a fall in inflation. All the while both public and private debt is going up.

“This is a typical case of a great depression ladies and gentlemen. To have this portrayed as Greece having turned the corner … is to violate both truth and the rules of democracy,” he said.

“Europe must cut its losses with a programme that is not working,” he continued. “This government expects that the only way of reforming Greece is if the Greek side is considered to be and treated as an equal to our partners and not as a debt colony.”

No easy way out

With Friday now the new deadline for Greece, eyes will also drift to Wednesday when the ECB reassess its emergency liquidity assistance to Greek banks.

The ECB last week increased liquidity to Greek banks by 5 billion euros ($5.7bn) to 65 billion euros ($73.8bn), and members of the bank’s governing board have hinted this week that they stand ready to extend more money even as a deal in Brussels appears elusive.

But if capital continues to leave Greek shores on fears the country might flop out of the euro then the ECB’s assistance could soon dry up.

“It’s difficult to see an easy way out of the bailout programme,” said Hannah Scobie, the London-based chairwoman of the European Economics & Financial Centre at the University of London.

“There is still a lot of tough talking to be done. None of these people can afford to give in.” 

Knowing this, the commission’s Moscovici will again have to choose between providing Greece with another favourable way out and crossing paths with Germany.