For a brief few hours yesterday morning, it looked as if compromise might be in the air. Greece had sent a letter to the euro zone group of finance ministers offering some shift in its position. The group’s chairman of the group, Dutch finance minister Jeroen Dijsselbloem, had responded by calling a meeting on finance ministers for this afternoon. The European Commission was saying there were signs of progress.
Then the unequivocal message came back from the finance ministry in Berlin. What Greece had put forward was not a “substantial” proposal and did not meet the conditions set by the finance ministers at their last meeting. Athens said its message to the finance ministers would be “take it or leave it”.
Later it emerged that German chancellor Angela Merkel and Greek prime minister Alexis Tsipras had spoken for 50 minutes on the phone. The Greeks said the call had been “constructive”, but there was no further comment from Berlin.
The question now is whether after the rhetoric of yesterday,progress is possible at today’s meeting. There were some more optimistic soundings overnight and early today. EU finance officials broke up around midnight with reports of sources saying that German concerns had eased. Sources confirm this morning that some ground was, indeed, made, with draft texts being put together. It should be clear soon enough after the meeting starts this afternoon whether there is, indeed, scope for agreement.
The two sides will meet head-on at this afternoon’s finance ministers’ meeting. At the last meeting Greece had little support around the table. It is not clear whether its somewhat more conciliatory tone may win some support this time. Slovakia has already taken a hard line and Spain is expected to do likewise. France however, may be more supportive and sources today say there is some realisation that Greece has given considerable ground. Minister for Finance Michael Noonan will meet colleagues in the People’s Party grouping before the meeting.
What Greece sought yesterday was an extension of what is called the “master financial assistance facility agreement”, which is the agreement under which the EU extends finance under the bailout programme. It presented this, and its agreement to further monitoring by the troika of the European Commission, IMF and European Central Bank, as a concession, -indicating it would seek to finish the programme successfully, but with some change in conditions.
Lack of trust
However, the language of its letter was loose and this appears to be what angered Berlin, highlighting the lack of trust between the two sides and the frustration in the German government at the approach taken by the new Syriza-led government.
The German finance ministry accused Greece of looking for a six-month “bridging loan”, rather than a bailout extension with tight conditions, as they said the EU finance ministers would need
Reports emerging from a meeting of euro zone finance ministry officials yesterday said that the German representative accused Greece of presenting a “ Trojan horse”and that much clearer commitments were needed. Greece needed to commit to seek an extension of the programme, to agree any changes in the programme with the troika and to seek to successfully conclude it, the German representative was reported as saying.
However later soundings from the meeting suggested that some progress had been made in meeting German concerns. There is scope for compromise here. The Greek letter is ambiguous in a lot of its wording – deliberately so, the Germans feel – but Athens could clarify its intentions. Germany and the rest could allow it some wriggle room by agreeing to examine some policy changes, subject to an assessment of its finances. There is also, of course, scope for a big row and for fears to grow that Greece will leave its programme at the end of next week without a financial backstop.
Muddle through
Its exchequer might muddle through for a while, though for how long is debatable, with IMF repayments due in March and repayments to the ECB due during the summer.
However, the real pressure point is the banking system. The ECB has agreed to extend emergency liquidity support for the Greek banks for two weeks to a total of €68.3 billion. If talks break down completely, the ECB could withdraw support on the basis of questioning the solvency of the banking system. There could also be queues of depositors wanting to withdraw cash, putting pressure on to impose capital controls to limit the amount that could be withdrawn or sent overseas, as happened in Cyprus in 2013.
Both Greece and the rest of the euro zone say they want Greece to stay in the euro to at least allow a few months of talks to try to find a long-term way forwward. Today’s meeting will be a key signal on the possibility of this happening.
