Tourists stand beneath a huge Greek flag in front of sections of ancient columns at the Acropolis hill, in Athens
Despite all the tough talk of ultimatums and games of poker, Greece and its creditors in the 19-country eurozone are still expected to cobble together some sort of deal that will allow the country to remain a member of the euro currency.
Investors and European policymakers are not panicking despite a breakdown in talks between the two sides over the new Greek government’s attempt to renegotiate its financial bailout.
That’s likely because they’ve been here before — the eurozone has in recent years often run into moments of brinkmanship, many times with Greece. Each time, a deal was clinched in time.
Both sides want to avoid the worst-case scenario in which Greece is cut off from aid and has to leave the euro. That would devastate Greece’s economy and rock global financial markets.
“If Greece were to leave the euro, the financial chaos that would follow could also spell the end of the Syriza-led government,” said Jane Foley, analyst at Rabobank International, referring to the radical party that won elections last month.
“For this reason it remains our central view that an eleventh hour compromise between Greece and its creditors is still likely.”
They’re on borrowed time, though. Greece bailout ends after Feb. 28 and the longer a deal is not found, the more jittery markets are likely to get.
While the volatile stock index in Athens actually rose temporarily yesterday before trading flat, Greece’s government borrowing rates are rising steadily — a sign investors are more wary of a potential bankruptcy.
NOTHING’S FOR CERTAIN
No one is discounting the possibility that Greece might fail to agree on a deal with its creditors, a development that could have big and unforeseen consequences both for Europe and the global economy.
The latest tension centers on the eurozone’s ultimatum to Greece to ask for an extension to its bailout program by Friday before further negotiations on the country’s future financing can take place.
Greece’s left-wing Syriza government made scrapping the bailout program a cornerstone of its recent triumphant election campaign. In return for 240 billion euros (USD275 billion) of rescue money Greece has been getting since 2010, successive governments have had to implement budget austerity measures such as deep cuts to spending and pensions.
Syriza, in power for barely three weeks, blames those measures for the country’s economic ills. The Greek economy has suffered through a depression and is now around a quarter smaller than in 2008, while unemployment and poverty have swelled.
“It would be an act of subterfuge to promise to our partners to complete successfully a program we challenged the logic of,” Varoufakis, said.
WHERE’S THE COMPROMISE?
Jeroen Dijsselbloem, the top official in the eurozone who issued the ultimatum, is hopeful that Athens will agree to extend its current program, and as an encouragement he laid out the prospect of an immediate renegotiation of some of its terms.
“We want to formally extend the program and then talk what changes are possible within that,” he said.
A deal could depend on something as simple as what the two sides agree to call the extension.
The Greeks do not want an extension of the current program, but a bridging loan. Whatever it’s named, both sides want the country to get a few months’ worth of loans to buy time for more thorough talks.
If they can agree on a word that saves face for both sides, a deal would be a lot closer, analysts say.
Greek Finance Minister Yanis Varoufakis laid out his hope that an agreement will be concluded in time and that progress could be made within the next 48 hours.
He said he was willing to a compromise that would see Athens delay its budget plans in return for loans. That would start a six-month negotiation on a new financial aid plan.
“We are ready and willing to do whatever it takes to reach an agreement over the next two days,” he said. Pan Pylas and Lorne Cook, Brussels, AP
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