Merkel mulls Greek options as PM wins aid for banks
German Chancellor Angela Merkel’s government is considering throwing a lifeline to Greece, as both sides firm up their negotiating positions for a deal to unlock aid.
With the country’s banking system on the brink and Prime Minister Alexis Tsipras’s rearguard action running out of road, Merkel’s government may be prepared to endorse a rescue payment in return for just one reform from the creditors’ list of demands as a start, two people familiar with Germany’s position said.
A government spokesman denied that Germany is considering such a deal, saying that it will only accept proposals made by the European Commission, the International Monetary Fund and the European Central Bank, the three institutions that represent the creditors.
“Where there’s a will, there’s a way,” Merkel told reporters Wednesday. “The goal is to keep Greece in the euro area.”
Greece wants a nine-month extension to the bailout agreement that is due to expire at the end of the month to allow more time to work out its reform program, an official from the administration in Athens said Wednesday. It’s difficult for Tsipras to concede more ground to the country’s creditors, the official added.
The European Central Bank already handed Greece one concession, authorizing the biggest increase in emergency funding for the country’s banking system in almost four months during a teleconference on Wednesday.
The Governing Council in- creased the limit on Emergency Liquidity Assistance by 2.3 billion euros ($2.6 billion US) to 83 billion euros to replace deposit outflows. Before the ECB intervened, banks’ cash reserves were down to about 700 million euros, a person familiar with the data said.
ELA “has to be weighed against the risk of overturning the entire Greek financial system,” ECB Executive Board member Yves Mersch said in Frankfurt on Monday. “The risk of saying no would be to plunge a whole financial system into chaos.”
Governors kept the discounts on the securities pledged as collateral against ELA unchanged despite the deterioration in Greece’s financial situation since that policy was last changed late last year.
The benchmark Athens Stock Exchange fell 1.1 per cent Wednesday adding to a 26.5 per cent drop since December, according to data compiled by Bloomberg. The yield on Greece’s 1.7 billion euros of 3 per cent bonds due 2025 rose to 11.4 per cent, which is up from a 7.4 per cent in December.
While the Germans still insist Greece will eventually have to deliver a package of steps that includes higher taxes, state asset sales and less generous retirement benefits, they may settle for a clear commitment to the institutions by the Greek government to just one measure up front to unlock aid, said the people, who asked not to be identified discussing the government’s negotiating stance.