Greece faces showdown talks in Brussels today as it races to secure a deal on its finances that will allow some room to boost spending – yet German officials insist they will not accept what they perceive to be Trojan Horse tactics.
The two sides appeared to be miles apart last night, with both countries’ finance ministers defiantly hitting out at the other’s stance. Some other Eurozone governments, such as Slovakia and Finland, are taking an equally hard line against Greece.
Greek finance minister Yanis Varoufakis vowed to reject a continuation of the austerity measures that comprise the existing agreement.
Varoufakis yesterday sent a letter to Jeroen Dijsselbloem – the president of the group of European finance ministers, or Eurogroup – requesting a new loan.
Greece doesn’t want to extend the current programme and wants a bridging loan to tide over the country for six months while a new programme is drawn up from scratch. Because the letter referred to an extension of the existing agreement, it was widely seen as a capitulation to European demands. Yet German officials responded that it would not be enough.
A document leaked to Reuters shows German officials expressing scepticism over parts of the letter, which they believe is vague and open to interpretation. The leaked document says the proposed agreement represents a Trojan Horse that would allow Greece to obtain the extra funding it needs without committing to the spending and reform conditions of its bailout.
If Greece fails to obtain extra funding it will likely force an exit from the euro – known as a Grexit. Greece faces large repayments of debt in March and over the summer, and could default. A default would bring the solvency of Greek banks into question, potentially causing them to lose emergency central bank funding.
There is a cap on how much emergency lending Greek banks can have from the European Central Bank, which was lifted by less than expected earlier this week. Some analysts have suggested banks could reach their borrowing ceiling early next week, which would leave depositors unable to withdraw money.
“Next week’s story seems likely to be the bank runs and queues into the Greek streets. Syriza will tell the Greeks they tried everything and the wicked Germans still said no. Grexit seems very close now,” said Andrew Lilico, executive director of Europe Economics.
Ratings agency S&P added yesterday that a Grexit would now be unlikely to lead to other Eurozone states also exiting the single currency.