Greek Government Submits Request for a Bailout Extension, Remains Stubborn

The euro has given back its gains in London morning trading as the proposal by Greek officials to the Eurogroup

Grexit_82X82The Greek government continues to stretch the nerves of its creditors as it has extended a proposal to the Eurogroup about an extension of the current bailout programme, albeit with new terms. As we go point by point on the conditions which the government of Alexis Tsipras is putting on the table, a deal at tomorrow’s new Eurogroup meeting seems less and less likely.

As it has previously, the Greek government does not feel right in the hands of the Troika and this is one of the key differences in the new agreement, Greece doesn’t want to be monitored by its creditors.

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The second key takeaway from the proposal is the reversal of the minimum wage reforms, which the previous government introduced in 2012 – an outright challenge in the face of the creditors, which is highly unlikely to be deemed acceptable.

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As a big portion of the electorate of SYRIZA are elderly people, the country is aiming to reduce cuts to pensions, which could be up for negotiation unlike the next point: It involves lowering the primary surplus target to 1.5% from 4.5%. This is likely to spark additional disagreements although a consensus is possible (at least in theory).

unbridgeable gap?

The Greek government also asks to renegotiate an incoming payment to the ECB totalling €6.7 billion throughout 2015. However, if it doesn’t commit to any austerity measures there is very small likelihood of carving out any consensus here.

As the document suggests, there is an extension needed to the deadline of the current bailout expiry date which is the 28th of February. That said, after undoing privatization efforts made by the previous government, there is no bridging the positions in these debtor-creditor negotiations.

As the ECB is preparing to release its first minutes of a monetary policy meeting ever, the Greek government is asking for more information as to whether a possible extension would restore the validity of using Greek bonds as collateral requirements for ECB loans. The Greek banks continue using the Emergency Liquidity Assistance (ELA) facility at much higher interest rates.

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