(Bloomberg) -- The
risk of Greece exiting the euro was raised to 50 percent by Commerzbank AG
after European Commission President Jean-Claude Juncker’s effort to strike a
deal was thwarted by euro-area finance ministers who sought to extend an
austerity program in exchange for financial support.
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, Monday’s meeting quickly
unraveled. The 19-nation euro, which lost ground Monday, was little changed at
$1.1353 Tuesday.
Commerzbank said in a
note the chance of Greece leaving the euro had risen from 25 percent. “After
the euro-zone finance ministers again failed to find an agreement with Greece
today, the euro membership of the country hangs in the balance,” it said.
Running Short
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.
‘Splendid’ and ‘Happy’
Monday’s impasse came
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 fell 34 basis points Tuesday to 17.2 percent after surging 174 basis
points Monday. The benchmark stock index fell 3.8 percent on Monday.
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.
‘Absurd’ Demands
“We both agreed that
it could be possible to keep 70 percent of the current program and to replace
measures, but which have to be fully financed, up to 30 percent” 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.
Closer to Bankruptcy
Some finance chiefs
countered that Greece didn’t put enough specific plans on the table. Greece did
not present any new data or numbers in between when finance chiefs gathered
last week and Monday’s meeting in Brussels, Pierre Gramegna, Luxembourg’s finance
minister, told reporters after the meeting.
“Greece finds itself
now closer to a new bankruptcy within the euro and potentially” leaving the
currency union, Nicholas Economides, professor of economics at Stern Business
School, New York University, said in an e-mail. “Greece could run out of money
in March.”
Amid all the
frustration, Italian Finance Minister Pier Carlo Padoan said Greece leaving the
euro zone remains “out of the question,” in comments to reporters Monday night.
“I am not worried,”
Padoan said. “I am convinced that we will ultimately reach a common ground and
a common decision.”
IMF Aid
Greece has so far been
promised 240 billion euros ($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.
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