Is this the beginning of the end for the eurozone? On Thursday, Germany rejected a Greek request for a six-month loan extension. The Germans insisted that the Greek proposal did not require the Greeks to adhere to the austerity restrictions which previous agreements had forced upon them. But Greek voters have already very clearly rejected the status quo, and the new Greek government has stated unequivocally that it will not be bound by the current bailout arrangement.
So can Germany and Greece find some sort of compromise that will be acceptable to both of them? It certainly does not help that some Greek politicians have been comparing the current German government to the Nazis, and the Germans have fired back with some very nasty comments about the Greeks. Unfortunately for both of them, time is running out. The Greek government will run out of money in just a couple of weeks, and without a deal there is a very good chance that Greece will be forced to leave the euro. In fact, this week Commerzbank AG increased the probability of a “Grexit” to 50 percent. And if Greece does leave the eurozone, it could spark a full blown European financial crisis which would be absolutely catastrophic.
What the Greeks want right now is a six month loan extension which would give them much more economic flexibility than under the current agreement. Unfortunately for the Greeks, Germany has rejected this proposal…
Germany rejected a Greek proposal for a six-month extension to its euro zone loan agreement on Thursday, saying it was “not a substantial solution” because it did not commit Athens to stick to the conditions of its international bailout.
Berlin’s stance set the scene for tough talks at a crucial meeting of euro zone finance ministers on Friday when Greece’s new leftist-led government, racing to avoid running out of money within weeks, will face pressure to make further concessions.
As the biggest creditor and EU paymaster, Germany has the clout to block a deal and cast Greece adrift without a financial lifeline, potentially pushing it toward the euro zone exit.
Even though Germany is already saying no to this deal, Greece is still hoping that the Eurogroup will accept the deal that it has proposed…
