Varoufakis Meets Euro Partners as Greece Seeks to Avoid Default

by Paul TugwellMarco Bertacche

11:34 AM EET

February 20, 2015

(Bloomberg) -- Greek Finance Minister Yanis Varoufakis returns to Brussels for a third meeting in two weeks with his euro-area counterparts in an effort to strike a deal that will let Europe’s most-indebted country avoid default.

In a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Varoufakis said he would accept the financial and procedural conditions of the existing deal while asking for negotiations on other elements.

German Finance Minister Wolfgang Schaeuble almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Greek Prime Minister Alexis Tsipras and Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“Hopes for a compromise at today’s Eurogroup have been raised,” analysts including Nikos Koskoletos at Athens-based Eurobank Equities wrote in a note to clients on Friday. “The key stumbling block remains the clearer language regarding the conclusion of the current program, as demanded by Greece’s creditors, and more details regarding the attainment of fiscal targets.”

Greek bonds rose for a third day, with the yield on the three-year notes down 80 basis points at 16.26 percent at 11:09 a.m. in Athens. That compares with a record 128 percent in March 2012. The Athens Stock Exchange index also rose for a third day, advancing 0.8 percent.

‘Significant Progress’

Germany, the biggest contributor to Greece’s 240 billion-euro ($273 billion) rescue, is the chief advocate of economic reforms in return for aid to Greece. Since winning a national election on Jan. 25, Tsipras has abandoned demands for a writedown on Greek debt, pushed back the timetable for raising the minimum wage and decided against blackballing the international auditors keeping tabs on the government.

“Admittedly, the letter sent by Greece marks significant progress,” Paris Mantzavras and George Grigoriou, analysts at Athens-based Pantelakis Securities wrote in a note to clients today. “It also contains a number of ambiguities that are hard to be accepted by the Eurogroup in their current form.”

Still, the fact that the group is holding a meeting implies that the letter marks a sufficient basis for discussion, the analysts said.

Tsipras held a 50-minute telephone call on Thursday with Merkel. After the call, Tsipras said the conversation had a “positive tone” and was aimed at finding a mutually beneficial solution for Greece and the euro area.

He also spoke with Francois Hollande and was assured by the French president that he would do whatever he can to help Greece and will discuss the issue Friday at a meeting with Merkel, a Greek official said. Merkel and Hollande are scheduled to meet in Paris Friday.

ECB’s Action

At the beginning of the week, Varoufakis had been trying to win easier fiscal targets, offering to deliver a budget surplus before interest payments equal to 1.5 percent of gross domestic product. That’s less than half the target set in the country’s bailout program.

If Tsipras doesn’t accept a deal from the euro area this week, the European Central Bank’s supervisory arm may tell Greek banks to reduce their holdings of government debt.

Uncertainty over the outcome of Tsipras’s dispute with euro-area member states has triggered deposit withdrawals of about 20 billion euros since December. To replace those deposits, banks need to borrow from the ECB and officials in Frankfurt are keeping Greece on a tight rein.

The Bloomberg Greece Sovereign Bond Index shows those with money at stake aren’t seeing a significant increase in the chances of a euro-zone departure.

‘Happy Day’

The index, a market-value weighted measure of Greece’s bonds, was at 90.89 at Thursday’s close. That’s more than five times higher than the level reached in 2012 as a slump in Greek securities pushed the nation to accept an international bailout and implement the biggest debt reorganization in history.

The U.S. also weighed in to step up pressure on Greece and its European creditors to reach a debt accord. Treasury Secretary Jacob J. Lew talked Thursday with Varoufakis, French Finance Minister Michel Sapin and Jeroen Dijsselbloem, who chairs meetings of the 19 euro-area finance ministers. Lew has also spoken to his German counterparts and officials at the European Commission and the International Monetary Fund.

Ahead of Friday’s struggle, Varoufakis said in a tweet at around 2 a.m. in Athens that he went to see Samuel Beckett’s play ‘Happy Days’ on Feb. 18 at the National Theatre of Athens.

The play’s protagonist Winnie is slowly buried from her waist up and contemplates suicide.

Her frequent refrain is “Oh, this is a happy day.” The performance was “splendid,” Varoufakis wrote.

To contact the reporters on this story: Paul Tugwell in Athens at ptugwell1@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net Vidya Root, Ben Sills