Thursday, February 19, 2015

Germany rejects Greek loan extension proposals sabotaging a deal for now

Moments after the European Commission had called the Greek proposals "positive" Germany rejected the proposal. Greece was requesting a six-month extension of its loan program. The complete text of the letter sent to the Eurogroup finance ministers can be found here. A spokesperson for the German finance ministry complained that the Greek proposals were attempting to obtain "bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the Eurogroup on Monday." The spokesperson also said that the suggestions were "not a substantial proposal for a solution". In the BBC article, at least, the spokesperson does not say exactly why the proposal is not a substantial proposal for a solution nor how exactly the proposals fail to meet the requirements of the program.

Syriza has caved on almost every demand including the demand that there be a new agreement and not an extension of the original agreement. The Greek proposals show Syriza has caved on debt reduction and in effect accepted the bailout terms:"The Greek authorities honour Greece's financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content."

 As this Wall Street Journal article explains Greek officials think that they can sign on to an extension of the terms of the loan agreement under the Master Financial Assistance Facility Agreement (MFAFA) without signing on to the bailout austerity conditions in the MoU or original memorandum of agreement. There is only one problem with that position and that is that getting a loan under the MFAFA is part and parcel of the MoU. You cannot get a loan without signing on to the austerity conditions of the MoU. "The availability and the provision of Financial Assistance under this Agreement... shall be conditional upon (i) the Beneficiary Member State’s compliance with the measures set out in the MoU and (ii) the Guarantors deciding favourably, on the basis of the findings of the regular assessments carried out by the Commission in liaison with the ECB ... that the economic policy of the Beneficiary Member State accords with the adjustment programme and with the conditions laid down by the Council in the Decision and any other conditions laid down by the Council or in the MoU. " I have omitted some of the legalese in this quote. For the entire quote in its original form see the article.

Another section of the Greek proposals accepts the supervision of the Troika without using that term:" f) To agree on supervision under the EU and ECB framework and, in the same spirit, with the International Monetary Fund for the duration of the extended Agreement. " So Syriza will not negotiate with the Troika but agrees to their supervision.

Some of the proposals do suggest that the Greek government should reverse some of the austerity measures: "The Greek government expresses its determination to cooperate closely with the European Union's institutions and with the International Monetary Fund in order: (a) to attain fiscal and financial stability and (b) to enable the Greek government to introduce the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens through sustainable economic growth, gainful employment and social cohesion. " Some of the reforms mentioned in b) would no doubt be inconsistent with present austerity policies tied to the bailout program.

 Mark Lowen of the BBC suggests that there is a rift at the highest level between authorities in Brussels and Berlin. European Commission president Jean-Claude Juncker took the Greek proposals as a positive sign that could pave the way for a reasonable compromise. Any vote on the Greek proposals must be unanimous so Germany can determine the outcome. A Greek government source said after the German rejection of its proposals: "Tomorrow's Eurogroup has just two choices. To accept or reject the Greek request. We will now discover who wants to find a solution, and who does not". Perhaps Germany wants Greece to  exit the euro zone and get rid of what it no doubt considers a trouble maker with uncivilized official who do not wear ties.

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