Euro Brinkmanship

The Panic before the Storm

A Greek flag flutters atop the Acropolis hill in Athens
Can Greece escape the storm?
  • Why it matters

    Why it matters

    While Greece and it euro zone partners struggle to reach a deal, Greek citizens and businesses, worried about a return to the drachma, are withdrawing large sums of money from their accounts.

  • Facts

    Facts

    • The Greek government applied for an extension to its bailout loan on Thursday.
    • Private deposits with Greek commercial banks have declined from €162.29 billion in November to €143 billion today.
    • The European Central Bank on Wednesday expanded the framework for ELA loans by another €3.3 billion, to €68.3 billion.
  • Audio

    Audio

  • Pdf

The tug of war over Greece and its future in the euro is going down to the wire.

On Wednesday, euro zone officials waited in vain for a letter from Athens applying to extend the country’s bailout loans – its financial lifeline to the world.

Finally, this morning, the Greek government sent the letter, just a day short of the deadline imposed by its European partners. But lenders are still unsure whether the Greeks will actually carry out the austerity cuts and structural reforms that are a precondition for further aid.

Jeroen Dijsselbloem, who chairs the eurogroup of euro-zone finance ministers, tweeted this morning: “Received Greek request for six months extension.”

The response from the European Commission, the E.U.’s executive arm, was described as positive. President Jean-Claude Juncker’s assessment was that it “could pave the way for a reasonable compromise in the interest of the financial stability in the euro area as a whole,” commission spokesman Margaritis Schinas said.

“The detailed assessment of the letter and the response is now up to the eurogroup,” he said. The finance ministers will hold an emergency meeting on Friday at 3 p.m. CET.

However, the reaction from Berlin is far from positive.

German Finance Minister Wolfgang Schäuble’s spokesman Martin Jäger said it was “not a substantial proposal for a solution.”

He said the Greek request was an attempt at “bridge financing, without meeting the requirements of the program.”

Greece needs to agree an extension on its loans from international creditors – primarily the European Union, the European Central Bank and the International Monetary Fund – before its bailout program expires at the end of the month.

The question is whether the Greek proposal will provide enough of a commitment to carry out the tough reforms demanded by its lenders, and Germany in particular. The initial response from Berlin does not bode well.

The last-minute negotiations are taking place as the ECB on Wednesday provided €3.3 billion ($3.75 billion) in extra emergency lending to keep the country’s banking system afloat. That is vital, as Greeks are withdrawing their savings at an alarming rate, fearing a return to the drachma.

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