Thursday 19 February 2015
Total funding on offer now €68.3bn as Greek banks come close to using €65bn of liquidity funds granted by European Central Bank
The embattled Greek government has been thrown a lifeline by the European Central Bank after the ECB agreed to €3.3bn more emergency funds for the country’s banks.
The move came as the US warned Greece that it had to be constructive and find a deal, and Athens confirmed that it will seek an extension to its rescue loans on Thursday.
The US Treasury secretary Jack Lew told the Greek finance minister Yanis Varoufakis in a phone call that Greece would face “immediate hardship” without an agreement and said the current deadlock was not good for Europe, despite signs that a compromise might be reached ahead of Friday’s deadline. “Time is of the essence,” Lew said.
Without a deal to extend the terms of its bailout, Greece is likely to run out of cash. The question is a matter of when – and the answer is complicated
The Greek government has promised to submit a request for a loan extension to officials in Brussels, but leaked documents showed that Varoufakis will not give up on plans to repeal austerity measures such as public sector job cuts.
Despite insistence from Brussels that Greece had to stick to cost cuts outlined under its bailout plan, Varoufakis said on Wednesday night he was confident his government’s proposed extension would be approved. “I believe the proposal will satisfy the Greek side and the Euro group president,” he said.
The clock is ticking down to a Eurozone-imposed deadline of Friday to reach an agreement, before Greece’s €240bn bailout – brokered by the ECB, the EU and the IMF – expires at the end of the month.
But with Greece and the Eurozone having failed twice in five days to bridge their differences, the Fitch credit ratings agency warned that “continued brinkmanship” could do lasting damage to the Greek economy. Analysts at Fitch said they were ready to lower their 2015 forecast for economic growth in Greece, having already cut it by one percentage point last month to 1.5%.
After a further day of fevered briefing and statements, the ECB decided to extend its emergency funding for Greek banks by €3.3bn, taking the total funding on offer to €68.3bn. Greek banks are close to using up the €65bn emergency liquidity funds the ECB has already granted them. This had fuelled speculation that the bank’s policymakers could turn off the taps to force Greece to compromise with the Eurozone.
The bank’s governing council was split on whether to extend the credit lifeline for Greece. But one Eurozone central bank official told Reuters that the ECB had to try to preserve financial stability and was not there “to teach Greece some kind of lesson”.
In another boost for Greece’s Syriza-led coalition, the government succeeded in getting its candidate elected as president. Prokopis Pavlopoulos, a former interior minister on the centre-right, was elected by MPs to take up the largely ceremonial post.
Alexis Tsipras, the prime minister, picked Pavlopoulos as a unity candidate and his election means Syriza has managed to avoid the problem that toppled the previous government. After the former prime minister Antonis Samaras failed to win approval for his candidate, Greece was forced into the early elections that brought Syriza to power.
The political win will allow the Greek government to focus its energy on persuading its Eurozone partners to accept its loan proposal.
Athens wants to resurrect a compromise plan proposed by the European commissioner, Pierre Moscovici, which was vetoed by Eurozone finance ministers at an acrimonious meeting on Monday.
The Moscovici plan would allow Greece access to short-term loans, but would not bind Athens to extending the current austerity programme, which the Greek government blames for a humanitarian crisis.
Greece is pressing for a rewrite of its bailout agreement that would allow it to run a 1.5% budget surplus, rather than the current target of 4.5% it has signed up to, freeing up money for social spending. It also wants guarantees it will not have to introduce pension cuts or VAT hikes, as well as a slower pace of privatisation.
With talks between Eurozone leaders expected to resume on Friday, the European commission delivered an uncompromising message that Greece would have to stick to an austerity course.
“The most realistic way forward is the extension of the current programme,” Valdis Dombrovskis, vice-president of the commission, told reporters in Brussels. Greece would be offered some flexibility, he said, but only by swapping some austerity measures for others of equal value.
Fury from far left
In Athens, the far-left anti-capitalist Antarsia party reacted with fury to the government’s decision to request an extension of its loan agreement.
Under the headline “It is time to break away from the European Union”, Antarsia (which is to the left of Syriza and has strong representation on Adedy, Greece’s powerful trade union of civil servants) blasted the euro group and the Syriza-led government for its handling of the Greek crisis.
“What has happened has proved yet again that the EU is the most reactionary, undemocratic and authoritarian construct in Europe after Nazism,” it said.
“We have a Greek government that in reality accepts the overwhelming debt and the immediate obligations that derive from this, commits itself to pulling off a primary surplus (that is to say austerity), has asked for an extension of the current loan agreement and declared that it accepts 70% of the memorandum.”
Even if the government pulled off its ultimate goal of coming up with a bridging agreement in the months ahead, the party said that it would amount to kicking the can down the road.
“The same problems will crop up again with the same result of austerity,” the ultra-leftists said.