A Greek/German standoff

February 10, 2015 09:29 AM

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Greece offered compromises ahead of an emergency meeting with its official creditors tomorrow as German Chancellor Angela Merkel remained unyielding over terms of the country’s bailout conditions.

Greek Finance Minister Yanis Varoufakis told lawmakers on Monday that the government intends to neither tear up the existing bailout agreement, nor allow the budget to be derailed. He said Greece will implement about 70% of reforms already included in the current bailout accord.

“The Greek side entered the negotiations very powerfully and very soon realized that things are worse than they expected, as they faced a concrete wall,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “A U-turn began very quickly. Varoufakis slowly started pouring more water in his wine.”

Greek government bonds rose for the first time in five days on optimism there might be room to move toward an agreement that will help ensure the nation isn’t left short of funds. Any accord, however, would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its 240 billion-euro lifeline.

The yield on Greek 10-year bonds fell 50 basis points to 10.2%. The Athens Stock Exchange Index rose as much as 6.8%. It has dropped 3.8% since the anti-austerity Alexis Tsipras was elected to power on Jan. 25.

The European Commission denied a report it will present a compromise proposal at the meeting tomorrow, saying “very intense contacts are ongoing between” Commission President Jean-Claude Juncker, Prime Minister Tsipras and others, and that the plan being worked on is to keep Greece in the euro area. Expectations are “low” for a final pact this week, the commission said.

Merkel’s Stance

Greece sought to drum up support for a €10 billion ($11.3 billion) bridge plan ahead of the euro-area finance ministers’ meeting in Brussels on Wednesday. The country is seeking to stave off a funding crunch, while also buying time to push creditors to ease some austerity demands.

Varoufakis’s proposal tomorrow will ask for an €8 billion increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek the disbursement of €1.9 billion of profits that euro area- central banks made on their Greek bonds holdings.

German political leaders have said they will not extend more assistance to Greece without strings attached. Merkel said in Washington on Monday that the existing aid programs are the basis for Greek talks.

“I’m waiting for Greece to come forward with a viable recommendation and then we’ll talk about it,” she said.

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