Despite all the tough talk of ultimatums and games of poker, Greece and its creditors in the 19-country eurozone are still expected to cobble together some sort of deal that will allow the country to remain a member of the euro currency.
However, as a Feb. 28 deadline nears, jitters are mounting.
For now, investors and European policymakers are not panicking despite a breakdown in talks between the two sides over the new Greek government’s attempt to renegotiate its financial bailout.
That’s likely because they’ve been here before ? the eurozone has in recent years often run into moments of brinkmanship, often with Greece. Each time, a deal was clinched in time.
> said Jane Foley, analyst at Rabobank International, referring to the radical party that won elections last month.
They’re on borrowed time, though. Though the volatile stock index in Athens actually rose on Tuesday before slipping a mild 2 percent, Greeces government borrowing rates are rising steadily ? a sign investors are more wary of a potential bankruptcy.
NOTHING’S FOR CERTAIN In markets’ sanguine reaction on Tuesday, no one is discounting the possibility that Greece might fail to agree on a deal with its creditors, a development that could have big and unforeseen consequences both for Europe and the global economy.
The latest tension centers on the eurozones ultimatum to Greece to ask for an extension to its bailout program by Friday before further negotiations on the country’s future financing can take place.
Greeces new left-wing Syriza government made scrapping the bailout program a cornerstone of its recent triumphant election campaign. In return for 240 billion euros ($275 billion) of rescue money Greece has been getting since 2010, successive governments in Athens have had to implement an array of budget austerity measures such as deep cuts to spending and pensions.
Syriza, in power for barely three weeks, blames those measures for the country’s economic ills ? the Greek economy is around a quarter smaller than in 2008, despite a recent modest return to growth while unemployment and poverty have swelled.
> Varoufakis, said.
WHERES THE COMPROMISE? Jeroen Dijsselbloem, the top official in the eurozone who issued the ultimatum, is hopeful that Athens will agree to extend its current program and laid out the prospect of an immediate renegotiation of some of its terms.
> he said.
It could come down to something as simple as what words are used.
The Greeks do not want an extension of the current program, but a bridging loan. Whatever it’s called, both sides want the country to get a few months’ worth of loans to buy time for more thorough talks.
If they can agree on a word that saves face for both sides, a deal would be a lot closer, analysts say.
Greek Finance Minister Yanis Varoufakis laid out his hope that an agreement will be concluded in time and that visible progress could still be made within the next 48 hours.
He said he had been willing to sign a draft statement, later scrapped by the eurozone on Monday, that involved Athens delaying its implementation of its austerity program in return for loans and the start of a 6-month negotiation to a future financial arrangement.
> he said.
BUILDING TRUST Varoufakis’ comments appear to have assuaged some of his peers in the eurozone as well as financial markets, though more talks are likely needed to clarify each sides position.
> Austrian Finance Minister Hans Joerg Schelling told Germany’s Deutschlandfunk radio.
After this week’s sudden breakdown in talks, Dijsselbloem has said trust needs to be rebuilt.
> said Aengus Collins, The Economist Intelligence Unit’s lead eurozone analyst. He added that the EIU >