Has Greece blinked? Rumours are doing the rounds this morning that its Government, led by the populist left-wing Syriza party, is about to request a four or six month (depending on which report you read) extension to its €240bn (£177bn) bailout, to give it time to negotiate a new long-term deal.
Markets seemed pretty pleased by the idea. After a sea of red yesterday, European indices were in the black across the board this morning – even in Athens.
But for those not worried about impending financial armageddon and rather enjoying the ongoing standoff between Greece and the rest of the Eurozone, led by Germany, do not fear – there is still a yawning gulf between the two sides.
Greece wants the money from the ‘troika’ (the European Commission, European Central Bank and International Monetary Fund), but labelled as a ‘loan’ rather than a rollover of the hated ‘bailout’, and with far less of the stringent austerity strings attached. On Monday night, it flat-out rejected a plan that would have effectively extended the current arrangement, which expires next Friday.
‘We will not succumb to psychological blackmail,’ its prime minister Alexis Tsipras told the Greek parliament yesterday. ‘We are not in a hurry and we will not compromise.’ He also proposed two populist laws that would defiantly flout the troika’s terms: ending ‘the medieval regulation of the labour market created by the troika to serve the interests of the oligarchs’ (i.e. bringing back collective bargaining) and allowing taxpayers to repay debts in 100 monthly installments.
But anything that isn’t a ‘bailout’ has to pass through several European parliaments – including Germany’s. Northern European voters are already unhappy about footing the bill for what they perceive to be past Greek profligacy (it’s not like Greece hasn’t been through six years of recession or anything).
And Germany et al have the upper hand right now. Despite all the grandstanding, Greece is in desperate need of money. Its tax take in January was 20% under target, according to the Economist, and Syriza’s plans to axe a property tax and raise income tax thresholds would shrink that even more. Some €7bn of government debt is due in the next six months.
Meanwhile, Greeks are withdrawing cash at an estimated €2bn a week, a rate that means their beleaguered banks will run out of collateral for new loans in 14 weeks, according to JP Morgan. The ECB is deciding this afternoon whether to extend emergency help to said banks and Germany is reportedly leaning on it to say no, which would ratchet up the already boiling pressure on Greece yet another notch.
But Germany needs to be careful not to push Greece so far it Grexits right out of the Euro, potentially bringing the whole single currency tumbling down with it. And Tsipras’ Government is hugely popular: last week 79% of Greeks said they supported its policies, while 74% thought its negotiating strategy would succeed. Germany needs to give Syriza something to sate Greek voters if it’s going to keep the Eurozone together.