No extension will entail a ‘dirty’ exit from the bailout

Finance Minister Gikas Hardouvelis issued a fresh warning on Thursday about the need to safeguard the cash flow in the Greek economy, while European Central Bank board member Ewald Nowotny and European Parliament Vice President Olli Rehn said there is no chance of a Greek debt haircut.

In an interview with the Financial Times, Hardouvelis called on election front-runner SYRIZA to ask for a six-month extension to the existing bailout program if it forms the next government. “I’m raising a flag because there is complacency about raising funds to pay our obligations, and that complacency is not warranted,” he stated.

He went on to warn that the new government will face “severe financial constraints” upon rising to power, as “the timeline is very pressing and the money isn’t there.”

Hardouvelis also noted that “we’re treading a thin line,” reminding that “foreign investors refused to participate in last month’s treasury bill auctions. They didn’t show up because they think the risk is way too high.” It is now estimated that Greek banks will find it difficult to refinance the T-bills held by foreign investors that mature in the first quarter of the year.

The minister therefore urged SYRIZA to work with the country’s European partners and agree to a six-month extension of the bailout, warning that “if we are not in a program as of March 1, that would mean a ‘dirty’ exit. We would be on our own without any European support. But six months would buy time to arrange a prudent exit from the program.”

Nowotny did not rule out a Greek departure from the eurozone, although he described that as particularly dangerous. What he did rule out was a fresh debt haircut, saying that the ECB could under no circumstances agree to a new debt write-off for Greece.

Likewise, Rehn said it is highly unlikely Greece will be able to secure any write-off of its arrears to the eurozone, and that Athens must instead focus on a longer repayment period.