All eyes on europe, as single currency declines on greek rejection
Syriza celebrating its election victory on Sunday 25th January Photo: Syriza (Facebook)
All eyes are on Europe today, as the Eurogroup meets to negotiate Greece's bailout, following Germany's rejection of an extension request yesterday.
Greece filed a request for a six-month extension to its eurozone loan this week. The formal letter, written by Minister of Finance Yanis Varoufakis, promised to maintain "fiscal balance" for half a year, while negotiating with eurozone partners for a plan of long-term growth and debt reduction.
"The Greek authorities honour Greece's financial obligations to all its creditors as well as state our intention to cooperate with our partners," wrote Varoufakis.
While the request offered signs of compromise, though, it also gave the country flexibility that appears to have prompted a negative reaction from Germany.
A spokesperson for the European Commission initially commented that President Juncker "Sees this letter as a positive sign, which, in his assessment, could pave the way for a reasonable compromise in the interest of the financial stability in the euro area as a whole".
Since then, though, Martin JäGer, a spokesperson for the German Finance Minister, has said that the letter "does not correlate to the criterion agreed on Monday's Eurogroup" and that it is closer to "bridge financing" and would not lead to a "substantial solution".
The Greek stock exchange initially rose 3 per cent on Wednesday morning as news of the extension application spread, but has since fallen on the back of Germany's rejection, before recovering slightly.
Finance ministers from the eurozone will now meet in Brussels to try and negotiate a deal for Greece.
Holger Schmieding of Berenberg bank told The Telegraph: "The bottleneck for Greece is to convince the finance ministers of Finland, Slovakia, Germany, The Netherlands, Portugal and others to keep funding Greece and to present such a proposal to their national parliaments.
"Greece is running out of time and money. Having already come part of the way, Greece may well move further and accept the current programme as the basis for all further discussions at the Eurogroup meeting Friday.
"Changing just parts of the request Greece has now submitted may suffice for that. But completing Greece’s inevitable U-turn that fast will be tough for its double-populist coalition, to put it mildly."
The prospect of a Greek exit ("Grexit") from the eurozone is now seeming more likely than it was following Syriza's election win. With no set process for a country leaving the eurozone, though, how will it affect both Greece's own economy and the wider European economy?
Capital Economics has predicted a "seismic reaction", warning that "the mechanisms in place to prevent contagion [with other countries' banks] are not as robust as many think".
Consumer confidence, though, climbed from -8.5 in January 2015 to -6.7 this month, according to data tweeted by David Powell, Chief Euro-Area Economist of Bloomberg Intelligence.
Charles Purdy, CEO, Smart Currency Exchange, tells TheMoveChannel.com: "The ongoing Greek bailout saga is causing considerable pain for the euro, with the single currency falling to fresh 7-year lows against sterling yesterday, and at the same time, falling to the lowest level against the US dollar all week."
Indeed, uncertainty has previously weakened the euro against sterling and the dollar, boosting the spending power of Brits and Americans looking for property overseas. Several French agents have reported heightened demand, particularly for ski property.
Greece, though, has seen bank deposits fall once again in December 2014 for the third month in a row.
"If a deal is not agreed, Athens faces the prospect of running out of money by the end of the month. The European Commission had welcomed the bailout extension request earlier in the week, as it was deemed a reasonable compromise and would therefore bring stability to the Eurozone. European Finance Ministers meet again today, with reports currently suggesting that the German leaders are closer to agreeing on a deal.
"The fate of the euro rests on the potential bailout package and the outcomes of today’s meeting – all eyes remain firmly on Europe to see what happens next."