Another round of negotiations takes place today in Brussels, after Greece dropped key demands for a bailout settlement, but had its proposal rejected by lead lender Germany, which criticized Athens' latest proposals as a "Trojan horse" designed to dodge its commitments.
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Eurozone finance ministers agreed to hold their third meeting on the Greek debt crisis in just over a week after Athens formally requested a six-month extension of loan agreements with rescue creditors that expire this month.
Going back on recent election campaign pledges, Prime Minister Alexis Tsipras' new left-wing government said it would honor debt obligations and agree to continued supervision from bailout lenders and the European Central Bank.
As the biggest creditor and EU paymaster,Germanyhas the clout to block a deal and castGreeceadrift without a financial lifeline, potentially pushing it towards theeuro zoneexit. But officials in other capitals saw the German response as tactical and forecast a deal by the weekend after more wrangling.
A Greek official said Prime Minister Alexis Tsipras had a 50-minute telephone call with German Chancellor Angela Merkel on Thursday, believed to be their first substantive exchange since the radical Athens government was elected on Jan. 25.
Greek media, including state television, widely quoted a German representative at the talks as saying the Greek offer "rather represents a Trojan horse, intending to get bridge financing and in substance putting an end to the current program.”
The German positionduringthe non public talks on Thursday could be summed as follows:
“The Greek letter is not clear at all, but opens immense room for interpretation. To mention the 3 most important points: It includes no clear commitment to successfully conclude the current programme and its falls short of a clear freeze of Greek measures. It is totally unclear how the Greek government wants to pay its bills over the coming weeks with the current short fall in tax receipts.This is why the letter is not in line with the last Eurogroup position. It rather represents a Trojan horse, intending to get bridge financing and in substance putting an end to the current programme. On this basis it makes no sense to start drafting a Eurogroup statementon Friday."
If finance ministersdo not agree on acommon statement today, a new EU summit would be possible next week, in order to avoid a Greek default. This was hinted at byGermany's EU Commissioner Guenther Oettinger. Oettinger told German radio Deutschlandfunkon Friday he thinksGreeceand its creditors should be able to reach a deal but may need another meeting ofeuro zoneleaders next week.
"We are working so thatGreecestays in theeuro zone,” said Oettinger. "On this basis I think an agreement will still be possible in the next eight days - if necessary via a further meeting of government leaders," he said.
Germany argues thatGreecehas failed to provide detailed alternatives to cost-cutting reforms imposed by the previous government that helped the country balance its budget after decades of excessive borrowing.
Greek and European markets were largely unaffected by the German response.AlthoughGreeceemerged from the recession with a primary budget surplus last year, it faces a spike in debt repayment in 2015 with hopes of a full return to markets hit by renewed uncertainty and a resulting surge borrowing rates.
Tsipras ousted traditionally dominant political parties in Jan. 25 elections, promising to scrap bailout agreements and supervision, and demand a massive write down ofGreece's240 billion euro bailout debt so that his government could tackle a dramatic surge in unemployment.
But in its latest proposals Thursday — carefully worded to avoid reference to the bailout agreement or "memorandum" — it scaled back those aims to seek more modest primary budget surpluses, budget-neutral growth measures, and calls for a deal later this year to improve bailout loan repayment terms.
Greek officials appeared visibly irritated by the latest German objections.
"All the conditions are there for a transition agreement to be achieved," Deputy Prime Minister Giannis Dragasakis said.
"At this moment it appears that there are powers that would likeGreeceon its knees, exactly so they can impose their will.”
Berlin can count on the support of north European fiscal hawks such as Finland and the Netherlands but also countries such asSpainandPortugalwhich have imposed austerity measures in return for aid and do not wantGreeceto get a softer deal.
ButGreecealso has sympathisers. ItalianEconomyMinister Pier Carlo Padoan warned of the risk involved in any Greek exit.
"We have to send a signal that the euro is irreversible," he told the magazine l'Espresso. "If a country were to leave, it wouldn't just mean one less country in the union but the transformation of the euro into a mechanism that can be undone."
Even Finland started wavering, ant the Finnish finance minister saidhe is hopeful that a deal will be agreed to extend Greece’s bailout programme.
Speaking to newspaper Helsingin Sanomat, Antti Rinne said: "Last night a spark of hope arose that an understanding could be reached ... so thatGreececould continue the underlying programme to strengthen its economy. "
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