Eurogroup “Kicks the Can Down the Road” on Greece

The “Eurogroup” of Eurozone finance ministers agreed yesterday to a four-month extension of the so-called Greek bailout package, conditional on an agreement to be reached with the Greek government, supposedly next Monday through Tuesday, on new reform measures to be substituted for the austerity measures in the current package which the Greeks reject. Further disbursements will be held up until final approval of the substitute Greek reform package by the end of April, but the ECB is expected to quickly reverse course, and continue to accept Greek bonds as collateral. Recapitalization and resolution costs will be provided for Greek banks subject to ECB approval.

Greek Finance Minister Varoufakis had originally asked for a six-month bridge loan, during which the Greek debt could be renegotiated as part of a “Contract for Recovery and Growth.” In a Jan 18 letter to Eurogroup head Dijsselbloem, he had reformulated this to a six-month continuation of the current package, but subject to renegotiation of the conditionalities, to replace them with reforms which would encourage economic growth. The purpose of the six-month breathing space would be the same. Today’s Eurogroup communique largely mirrors Varoufakis’s letter, often word-for-word, except that the extension is for only four months rather than six. It reproduces verbatim Varoufakis’s commitment to refrain “from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.”

The Greek government is to provide the Eurogroup with its proposed substitute reforms on Monday, and then the Eurogroup will meet by telephone Tuesday to approve them. But don’t expect anything so simple from these fraught negotiations over the fate of a bankrupt financial systems. It is what we do, in exposing the fraud of the Greek debt and Wall Street’s bankruptcy, which will decide what happens then.