EU Economy
Germany demands 3-sentence letter on bailout extension
By Michael Hennigan, Finfacts founder and editor
Feb 20, 2015 - 5:22 AM

Wolfgang Schäuble, German finance minister, speaking in Brussels, Monday Feb 16, 2015

Germany on Thursday rejected a letter from Yanis Varoufakis, Greek prime minister, to Jeroen Dijsselbloem, to his Dutch counterpart  who is also president of the Eurogroup of Eurozone finance ministers, requesting a six-month extension of the current bailout agreement that is due to expire at the end of the month. Germany swiftly rejected the letter terming it  a "Trojan Horse" as it set out new conditions and Berlin demanded a simple 3-sentence letter from Athens.

Kathimerini, the Athens newspaper, reports that Alexis Tsipras, Greek prime minister, spoke with Angela Merkel, German chancellor, Thursday evening and they spoke for just under an hour in a conversation that the Greek premier described on his Twitter account as being “in a positive climate” and showing “interest in finding a mutually beneficial solution for Greece and the Eurozone.” Tsipras also spoke with François Hollande, French president, sources said.

"The letter from Athens is not a substantive proposal for a solution,” said the spokesman for Wolfgang Schäuble, German finance minister, in a statement Thursday.

The Financial Times reports that in a pre-Eurogroup meeting of finance ministry deputies on Thursday, called on Athens to submit no more than a three-sentence letter requesting the extension, promising to complete the programme, and committing to negotiating any changes with bailout monitors.

Germany also wants €10.9bn in bailout funds that are in Greece’s bank bailout facility returned saying Greek banks passed an ECB-administered stress test last year and no longer needed the funds.

Stephen Fidler, Brussels bureau chief of The Wall Street Journal writes: "The Greece crisis is reinforcing a cardinal rule of sovereign-debt crises: It isn’t whether a government can pay what it owes, it’s whether it wants to,"  he writes. "Athens argues that its debt-servicing schedule will force it to run a so-called primary surplus—a budget surplus before interest payments—equivalent to 4.5% of gross domestic product next year and for the indefinite future. That, it says, is just not politically sustainable. Nonsense, say its creditors; such budget performances aren’t unusual.

In its June 2011 monthly bulletin, the European Central Bank cited four other Eurozone countries that did just that or more in recent history: Belgium (1993-2004), Italy (1995-2000), Ireland (1988-2000) and Finland (1998-2003). Even Greece managed it from 1994 to 1999.

In just about all of these cases, countries were pushing debt down to prepare for their entrance into the European Monetary Union."