February 17, 2015 – Eurozone ministers handed Greece an ultimatum to request an extension to its bailout programme on Monday (Feb 16) after crunch talks collapsed, deepening a bitter stand-off that risks seeing Athens bid farewell to the euro.
Eurogroup head Jeroen Dijsselbloem said Greece had the rest of the week to request an extension to the programme, which expires at the end of the month, challenging Athens to cave in on a dearly held position.
“Given the timelines we have … we can use this week but that is about it,” said Dijsselbloem, who is also Dutch finance minister and a defender of austerity policies in the eurozone.
A Greek government source dismissed the demand to hold to its current bailout as “absurd” and in violation of a key promise made by new Prime Minister Alexis Tsipras to voters in elections he won last month. “The insistence of certain people for the new Greek government to enforce the bailout is absurd and unacceptable,” the source said.
The radical leftist Tsipras government is trying to win a huge overhaul to the terms of its €240 billion (US$270 billion) bailout which it says has damaged the Greek economy after years of imposed austerity.
But Greece’s 18 eurozone partners, led by the influential German Finance Minister Wolfgang Schaeuble, insist that any change to austerity terms pass within the current programme.
“There’s only one reasonable path, that of a technical extension with flexibilty … to take the Greek people into account,” said French Finance Minister Michel Sapin. But Tsipras swept into power last month on a promise to tear up the bailout agreement, all the while keeping the country in the 19-member eurozone.
To meet that pledge, Tsipras wants the eurozone to ditch the current deal and to agree to four to six months of short-term funding to buy the time to hammer out a new agreement, this time without austerity conditions.
Greece’s EU partners are infuriated that Athens may wriggle out of its commitments. They demand instead that Greece agree to extend the current programme by at least a few months and then talk about what happens afterwards.
“If the Greek authorities want to take that path, a meeting will take place Friday to confirm their decision,” Sapin said.
EU Economic Affairs Commissioner Pierre Moscovici also urged Greece to bite the bullet, promising that the eurozone would make every effort to be flexible.
“It is very important that the Greek government ask for an extension. It includes the legal basis on which we can work,” Moscovici said as the talks broke up after only a few hours.
Greece categorically rejects that option because it would come with the same austerity conditions which it says have destroyed the economy and thrust millions of Greeks into poverty.
In Athens, Tsipras’ coalition partner Panos Kammenos, who heads the Independent Greeks party, said the country would not request an extension. “We will not request any extension, we have a public mandate to go to the end. The Greeks together say no, we will not be blackmailed,” Kammenos said on Twitter.
Greece was represented at Monday’s talks by new finance minister Yanis Varoufakis, a hard-charging professor and blogger, who before the talks said Greece was not “playing games”.
“We are determined to clash with mighty vested interests in order to reboot Greece and gain our partners’ trust,” Varoufakis wrote in The New York Times. “We are also determined not to be treated as a debt colony that should suffer what it must,” he said.
At the height of the debt crisis in 2011-12 the possibility that Greece would crash out of the euro panicked world markets, and the worsened stand-off on Monday once again raised the possibility.
As news of the talks collapse spread, the euro fell sharply to US$1.356 after markets had kept a wait-and-see attitude for most of the day. Earlier, the Greek stock exchange dropped by more than 4.0 per cent.
The bailout standoff is the latest stage in a long-running crisis over Greece’s huge debts, run up during years of overspending epitomised by the 2004 Athens Olympics.
In return for the two rescues, previous Greek governments agreed to a series of deep austerity measures and much-resented oversight by the EU, IMF and ECB “troika” to make sure it stuck to the bailout terms.
The bailouts kept Greece in the eurozone but it also left Athens with a debt mountain of €315 billion, about 1.75 times the size of its economy.