Finance Minister Yanis Varoufakis said Greece won’t seek an extension of its bailout agreement, setting the government on course to enter March without a financial backstop for the first time in five years.
Greece won’t engage with officials from the troika of official creditors who have been policing the conditions of its rescue since 2010. It’s five-day-old government wants a new deal with the European Union that allows for more spending, Varoufakis said at a joint press conference with Eurogroup Chief Jeroen Dijsselbloem in Athens, Friday.
“We don’t plan to cooperate with that committee,” Varoufakis said. “The Greek state has a future, but what we won’t accept has a future is the self-perpetuating crisis of deflation and unsustainable debt.”
The standoff could see Greek banks effectively excluded from European Central Bank liquidity operations and the government with no source of funding, having rejected EU aid while still shut out of international markets.
“These people are not bluffing,” Theodore Pelagidis, a senior fellow at the Brookings Institution, said by phone. “There is no way that Greece will make it through February. The situation will be get worse every day, and at the forefront of the drama will be the country’s banks.”
Greek bonds tumbled, with the yield on three-year government debt rising 148 basis points to 18.76 percent at 5:43 p.m. in Athens. The stock market reversed earlier gains to close 1.6 percent lower.
Prime Minister Alexis Tsipras briefed Dijsselbloem for about half an hour before the Dutch minister met Varoufakis. The Greek government wants a new plan to focus on combating corruption and boosting public investment instead of cutting the deficit.
While Varoufakis said he intends to balance the budget, the proposal hinges on the euro area and the European Central Bank agreeing to write down Greece’s public debt, a suggestion that has been met with skepticism by officials across the rest of Europe.
“The program has an extension which runs out at the end of February and we will decide before that time what happens next,” Dijsselbloem said. Euro area governments are “committed to providing support for Greece during the life of the program and beyond until it has regained market access, provided Greece fully complies with the requirements and the objectives of the program,” he added.
A German official earlier on Friday said Tsipras is making unrealistic demands and will end up without a financial backstop unless he honors his country’s commitments to its official creditors.
German Finance Ministry Spokesman Martin Jaeger said Greece’s demand for a writedown is “outside reality” and the financial lifeline that has kept the country afloat since 2010 will expire next month unless Tsipras shows a “clear willingness” to meet the country’s existing agreements.
“The announcements from Athens are so far going in the opposite direction,” Jaeger told reporters in Berlin. [Bloomberg]