Greece gets short-term loan, but no compromise
Greek proposal to get bailout without austerity measures not expected to receive approval from European creditors; ECB provides emergency funds for 1 week.

Greece's compromise to renegotiate its public debt is already getting a cool reception from its European creditors, ahead of an official meeting Thursday.

"Continued brinkmanship in the negotiations between the Greek government and its official creditors has increased risks," warned credit agency Fitch Ratings in a note Thursday.

Douglas Renwick, senior director for Sovereigns at Fitch, said that the onus for compromise is on Greece.

But the proposed compromise that was released Wednesday and officially submitted Thursday by Greek Finance Minister Yanis Varoufakis, has not been well received by European creditors.

If the creditors do not accept the compromise, or come up with another solution by Friday, the €240 billion ($273.9 billion) bailout program expires, and Greece may have to default on its debt, as well as institute capital controls to retain the dwindling liquidity in the banking system.

For now, the European Central Bank has provided €3.3 billion ($3.7 billion) in emergency funds so that Greek banks can continue operations. But that amount is only sufficient to keep Greek banks afloat for one week; the Greek central bank had requested €10 billion ($11.4 billion).

Greek compromise proposal

The Greek government has proposed to accept an extension of the bailout program for six months to enable it to pay its public debt and to restore liquidity to the banking system.

The proposal seeks an extension to the "Master Financial Assistance Facility Agreement," the official name for the European Financial Stability Facility’s loan contract. That contract does not discuss the bailout terms, but states that it is contingent on the bailout memorandum, a separate document signed by Greece and its creditors.

The memorandum imposes the terms of austerity and demands a specific economic reform program. The current SYRIZA-led coalition government proposes to drop the terms imposed by the memorandum, and indeed has made ending austerity a fundamental part of its program.

Unfortunately, Greece is obliged to make the changes imposed by the memorandum if it is to receive the outstanding €7.2 billion ($8.2 billion) in bailout funds that the government needs to keep the banks and public finances up and running.

"We should extend the credit program by a few months to have enough stability so that we can negotiate a new agreement between Greece and Europe," Greek Finance Minister Yanis Varoufakis told Germany's ZDF television Wednesday night.

No credit without reforms

Ahead of an official discussion of this agreement Thursday, reactions have been negative among Greece's European creditors.

German Finance Minister Wolfgang Schaeuble dismissed the Greek proposal, saying, in a television interview Wednesday, "It's not about extending a credit program but about whether this bailout program will be fulfilled, yes or no."

Schaeuble added: "I don't have any new information, but there is no loan agreement, it's an assistance program. And in this seemingly unimportant detail lies the key: Greece would like to receive credit, but not fulfil the conditions to allow Greece to recover economically."

The European Commission’s vice president for eurozone affairs, Valdis Dombrovskis, said "the best way forward is to extend the existing program with its conditionality." Dombrovskis noted, however, that if Greece wants to substitute some of the existing measures in the memorandum with alternatives, it could do so.

While the creditors are unlikely to accept the Greek proposal, there is hope that a last-minute compromise will emerge from the meeting Thursday.

Last Modified: 2015-02-19 10:21:28
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