Greece to make proposal to creditors, but unclear whether it would be accepted

Greece was preparing Wednesday to present its creditors with an official proposal aimed to save bailout talks from collapse, as time is running out for a deal that would keep the country solvent and within the euro currency bloc.

ATHENS, Greece — Greece was preparing Wednesday to present its creditors with an official proposal aimed to save bailout talks from collapse, as time is running out for a deal that would keep the country solvent and within the euro currency bloc.

Germany, the main European creditor, was quick to say it was skeptical, while the European Commission said it was waiting to see what the proposal entailed.

Greek government spokesman Gavriil Sakellaridis said Athens’ plan would involve extending the 240 billion euro international loan agreement that has kept the country afloat since 2010 — but, apparently, without the austerity strings attached.

“We believe the terms of the bailout cannot continue by any means,” Sakellaridis told private Antenna TV.

Greek shares were up 1.8 per cent in afternoon trading, after days of losses, and the Euro Stoxx 50 index rose 0.7 per cent.

The new radical left-led government in Athens insists it will not accept any extension of the bailout deals that required strict budget austerity measures. The deep spending cuts and income reductions worsened an economic depression and sent unemployment levels above 25 per cent.

Greece’s creditors in the 19-country eurozone have given Greece until the end of the week to request an extension of the extant bailout agreement — including the associated budget austerity measures — after talks Monday failed to make any headway.

In those talks, Finance Minister Yanis Varoufakis told his eurozone counterparts Greece was “ready and willing to apply for an extension of our loan agreement till the end of August, or any other duration that eurogroup may deem fit.” He said Greece would also agree on “a number of sensible conditionalities” during that period, although he did not elaborate on what they might be, according to a transcript of his speech released by the ministry.

Sakellaridis said the extension proposal was being prepared for submission Wednesday, although officials said it could take another day to finalize.

“We really need to see on paper what exactly the Greek government is requesting,” EU Commission Vice-President Valdis Dombrovskis said in Brussels.

“The economic situation is developing very rapidly, unfortunately not in a favourable direction,” he said. He noted volatility in financial markets and some outflow of deposits from Greek banks. “To deal with these tendencies, markets should be reassured that there is an agreement being prepared.”

In an interview with ARD television, German Finance Minister Wolfgang Schaeuble was skeptical, openly referring to the possibility of Greece having to leave the euro.

“We’re a bit used to this — every day there are different reports, and then when we are in a room together things sound completely different,” he said Tuesday night.

The European part of Greece’s bailout expires on Feb. 28. If no deal is reached by then, the European Central Bank would face increased pressure from eurozone governments to cut off emergency financing for Greek banks.

That could place so huge a strain on the country’s financial system that the government would be forced to print its own currency and leave the euro. That’s a worst-case scenario for all sides — Greece’s economy would suffer terribly, at least in the short term, and European countries would be stuck with losses on their loans to Greece.

“No one in the eurogroup wants to force Greece out of the euro,” Schaeuble said. “It’s entirely up to officials in Greece.”

The European Central Bank is due to meet Wednesday to decide whether to further extend emergency financial support to Greek banks, which have been suffering a deposit outflow amid the uncertainty of negotiations.

“We are at a critical juncture in the negotiations. Critical and sensitive,” said Prime Minister Alexis Tsipras, who was elected last month on a promise to end the austerity that accompanied Greece’s bailout deal.

Berenberg Bank analyst Holger Schmieding said that while chances of a deal have risen a little, a large snag is that Athens still rejects the terms attached to the loans it needs.

“A Greek suggestion to not take steps that would directly endanger fiscal targets but go ahead with reversals of structural reforms does not come close to what creditors could accept,” he said in a note.

Germany has insisted that any funds must come with strings attached.

Bavarian Governor Horst Seehofer, the leader of one of Germany’s three governing parties, underscored that sentiment at a rally Wednesday.

About Greece’s new government he said: “One thing won’t work: coming into government with promises of higher pensions, higher minimum wages and more state employees — four or five times as many as in Bavaria, I think — and then having Bavarians fork out for these election gifts. There will be no question of that with us.”

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