Alexis Tsipras’ speech before the Greek parliament on Sunday night was tougher than expected. The Greek premier called for a “bridging agreement” but rejected a programme extension and reinstated most of his pre-election pledges. This has reduced the chance of a deal at the forthcoming meetings of eurozone finance ministers (on Wednesday) and heads of state (on Thursday). As a compromise is in the interest of all negotiating parties, this remains the most likely scenario, in our view, but might require an escalation of tension.
The risk of a stand-off that could potentially set the stage for a Greek exit from monetary union has increased. In a powerful and emotional speech before the national parliament, the new Greek premier Alexis Tsipras formally rejected the option of an extension of the current bailout programme that expires at the end of February and called instead for a “bridging agreement”, which would allow Greece more time to renegotiate the terms of the memorandum with its creditors. Mr Tsipras also re-stated his government’s intention to go ahead with a number of economic measures announced during the electoral campaign, some of which conflict with the current programme.
The speech, which opens a three-day parliamentary debate on the government’s agenda, will end with a vote of confidence later today. It will effectively put Greece on a collision course with its creditors ahead of an emergency meeting of eurozone finance ministers on Wednesday and the EU Summit on Thursday. Below, we look at the possible outcomes of the upcoming negotiations between Greece and its creditors and the constraints faced by the Greek government in the process. We continue to believe that a compromise allowing Greece to remain in a bailout programme will eventually be found. The risk of a stand-off in the negotiations that could potentially set the stage for a Greek exit from monetary union has increased, however.
Short term: Programme extension or bridging loan With the current programme expiring on 28 February, all parties agree on the need for a temporary solution that can give the new government more time to settle down and negotiate some of the elements of the current programme with its creditors. There is, however, disagreement on the form such a solution may take. The Greek premier is calling for a bridging loan with little or no conditions that would de facto suspend the current bailout programme, although creditor countries are pushing for an extension of the current programme. A bridging loan is not envisaged by the EU safety net and so would establish a precedent that commitments taken by previous governments may easily be ignored.
The solution of this first important impasse will give us a vital clue as to the possible outcome of future negotiations. We assume that Syriza will backtrack on its current position and accept an extension of the programme. Such an outcome would be the basis of a more enduring compromise on a number of aspects of the current programme.
