Greece Needs 10 Billion-Euro Bridge Funding From EU

by Eleni ChrepaChristos Ziotis

Angela Merkel, Germany's chancellor, pauses during a news conference at the Chancellery in Berlin, Germany, on Jan. 8, 2015. Photographer: Krisztian Bocsi/Bloomberg

(Bloomberg) -- The risk of a clash between Greece and its euro partners grew as German Chancellor Angela Merkel signaled little willingness to compromise over the conditions attached to the country’s bailout.
Merkel said she’s looking for a “viable recommendation” from Greece as it tries to drum up support for a 10 billion-euro ($11.3 billion) bridge plan ahead of a euro-area finance ministers’ meeting on Wednesday.
“It’s clear that the risks to the world economy, the risk to the British economy of this standoff between the euro zone and Greece, is growing each day,” U.K. Chancellor of the Exchequer George Osborne said in an interview with Bloomberg Television in Istanbul late on Monday. “The risks of a miscalculation or a misstep leading to a very bad outcome are growing as well.”

While French Finance Minister Michel Sapin said Monday that a plan for bridge funding was needed, such an accord would require an easing of Germany’s stance in
the standoff between Greece and its creditors over conditions attached to its 240 billion-euro lifeline. The impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and puts Europe’s most-indebted state’s euro membership in danger.
German political leaders have said they will not extend more assistance to Greece without strings attached. Merkel said in Washington on Monday that the existing aid programs are the basis for Greek talks.
“I’m waiting for Greece to come forward with a viable recommendation and then we’ll talk about it,” she said.

Not Tenable

Greece’s public debt currently stands at more than 320 billion euros, or about 175 percent of gross domestic product.
About 100 billion euros of that debt needs to be canceled for it to be manageable, Matthieu Pigasse, head of Lazard Financial Advisory, hired by the Greek government as adviser on issues related to public debt and fiscal management, said today in an interview on France Inter radio in Paris.
Such a reduction would bring the country’s ratio of debt to GDP to 120 percent in 2020 and would make Greece’s debt burden more “sustainable,” he said.
“Everyone knows, each European government knows, that the debt is today unsustainable or untenable,” he said.
In an attempt to stave off a funding crunch and buy time to push creditors to ease austerity, Greece’s Finance Minister Yanis Varoufakis is set to present a proposal at a Wednesday meeting of euro-area finance ministers in Brussels that will ask for an 8 billion-euro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek the disbursement of 1.9 billion euros of profits that euro area-central banks made on their Greek bonds holdings.

A Bridge

“In the short term, we need to put together what some may call an extension, or the Greeks might want to call a bridge,” France’s Sapin said on Monday at the Istanbul gathering of Group of 20 finance ministers. “Then we’ll have to find medium-term solutions going forward, looking ahead to June.”
Behind the public rhetoric, the Greek government has shifted to a more cooperative stance in recent conversations with the troika of the IMF, the European Central Bank and the European Commission, according to an official representing the creditors.
Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Alexis Tsipras accepts he needs a new program, which will include monitoring, and commits not to reverse the most important overhauls of the bailout agreement.
The Greek government’s proposal for a bridge deal is aimed at allowing the country to break the impasse and negotiate a more permanent arrangement with its creditors by this summer.

‘No Way’

“There is no way out” for Greece from its bailout obligations, Michael Fuchs, a deputy caucus chairman for Merkel’s Christian Democratic Union in parliament, told Bloomberg Television in an interview. “We have a full disagreement at the moment, because what they want to do has nothing to do with all the agreements which have been made.”
Greece is pushing for a successor program to its current bailout, which will be focused on structural economic overhauls rather than fiscal measures.
The government said that reforms will be carried out in cooperation with the Organization for Economic Cooperation and Development, while it will not allow the budget to be derailed.
Greek government bonds rose today after four days of declines. The yield on 10-year bonds fell 24 basis points to 10.5 percent. The Athens Stock Exchange Index rose 2.8 percent to 786.66 at 10:51 a.m.

Confidence Vote

Greece’s new anti-bailout government, led by Tsipras, laid out a lengthy list of policy actions, including a gradual increase in the minimum wage and a boost to the threshold of tax-exempt income. The plan will be put to a confidence vote in Greece’s parliament today. The measures would breach the terms of the country’s emergency loans agreement with the euro area and the IMF.
Tsipras has said they are necessary to alleviate the “humanitarian crisis” in Greece after five years of belt tightening that left more than a quarter of the workforce without a job. A Feb. 6 poll for Skai Television showed that 72 percent of those surveyed support his negotiating tactics.
Last week Varoufakis told investors in London that the debt restructuring Athens is requesting will not include a writedown on the nominal value of the country’s debt.
Greece is also open to discussing a precautionary credit line backed by euro-area funds after the deal on the bridge program has been sealed, said the Greek government official who spoke on the condition of anonymity.