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Christina Vasilaki: Ongoing negotiations for an agreement on the day after

Friday is the deadline set by the Eurogroup for Greece to request an extension of the Greek programme, which is bound to expire on 28 February 2015. At the same time, the Greek government is willing, one day in advance, to file a request to extend the loan agreement, although without the accompanying terms laid down by the Memorandum. Once submitted, the request is scheduled to be discussed in a new extraordinary Eurogroup meeting on Friday, where the decision for Greece’s day after will be made.

As it was made clear in the Eurogroup of 16 February, extending the existing programme is the sole proposal set forth by the 18 Eurozone partners of Greece right from the outset, since the first Eurogroup where the new finance minister Yanis Varoufakis participated, while gradually stiffening their attitude.

No agreement had been reached in the first meeting of the Eurozone finance ministers, although the two sides approached each other. After four attempts to issue a joint statement, the Greek side denied the signing of a document that explicitly referred to an extension of the “existing” programme. Nevertheless, a political way out was found on the following day during the Euro Summit, when Prime Minister Alexis Tsipras and Eurogroup President Jeroen Dijsselbloem announced, in a joint statement, that technocrats from the Greek Ministry of Finance and the three institutions, namely the European Commission, the ECB and the IMF, shall proceed to technical discussions in the coming days in search for a common ground between the current programme and the positions of the Greek government, in light of the second meeting of the Eurogroup on 16 February.

According to the head of the Eurogroup, the results of these discussions were “disappointing” and failed to provide a clear mapping of the measures already agreed upon (under the current programme) and accepted by the new government, as well as of the measures that need to be replaced with equivalent ones.

As a result, the Eurozone finance ministers attended the meeting of Monday prepared to put pressure on the Greek side on two levels: on the one hand, to substantiate its precise aspirations and, on the other hand, to immediately submit a request for an extension so as not to disrupt the existing security framework, and in order to allow sufficient time for a new agreement between the two sides to be discussed and reached. Similarly, that meeting was also fruitless, whereas the Greek side appeared to reject another attempt to issue a joint statement.

For his part, the Greek finance minister, Yanis Varoufakis, described the decision of the head of the Eurogroup to present the extension of the current programme as a final and sole proposal, accompanied with the commitment of the Greek government to successfully completing it, as a reversal of what Mr. Tsipras and Mr. Dijsselbloem had agreed. “This proposal took us back to Wednesday and once again mentioned the current programme and its extension, with the only change being the flexibility of the programme without specifying, however, what flexibility means exactly,” said Mr. Varoufakis after the Eurogroup, speaking of a different draft that the Commissioner for Financial and Monetary Affairs, Pierre Moscovici, had presented to him before the Eurogroup and which he was ready to sign. According to Y. Varoufakis, this draft referred to an extension of the loan agreement, which would then lead to a six-month interim programme, until the transition to a new pact for growth in Greece. That document foresaw the provision of technical assistance by the Commission, in order to accelerate the implementation of reforms.

“We were prepared to take no action during the period of this interim agreement between now and, let’s say August, no action that threatens to derail the existing budget framework or any other action that has in the ECB’s estimation implications for financial stability,” said Y. Varoufakis. Moreover, he pointed out that the only stipulation of the Greek government was not to implement any measures that lead to recession, i.e. no further cuts of low pensions or increases in the VAT, especially in those areas of Greece where tourist activities are most prevalent.

This document by the European Commission could only have a facilitating role with regard to the final text, the drafting responsibility of which lies exclusively with the head of the Eurogroup. Despite information pointing towards the heads of the three institutions (Commission, ECB, IMF) having approved this text, it was not incorporated in the final proposal by J. Dijsselbloem, thus leading to the ineffectual ending of one more meeting.


The loan agreement, the programme and the commitments

Despite the apparent negotiating deadlock, it appears that the two sides are not far from each other concerning the substance of the deal. More specifically, disagreements mainly relate to the exact wording of the commitments of the two sides, thus being indicative of the great lack of trust between them.

The Greek government is asking for an extension of the loan agreement, clearly distinguishing it from the programme/ memorandum, whereas the European side is calling for a commitment to complete the current programme (noting, however, its vague willingness to offer flexibility in the implementation), which the other side perceives as an attempt to entrap it by the commitments of the previous government.

In essence though, the two sides have clearly agreed to the following:

Greece acknowledges the loan agreement and, thus, its obligations to the creditors.

There is a need for a few-months’ agreement (extension or bridge) to cover the financing needs of Greece, which shall be accompanied by specific terms and conditions.

Compared with the previous programme, the package of measures and reforms accompanying the agreement will be more flexible regarding the primary surplus, while the replacement of particular measures shall be discussed.

In this period, no measures will be implemented that would impact on the budget or endanger the financial stability of the country, and no measures already implemented will be abolished.