Greek Debt Talks Collapse in 30 Minutes

02/16/2015 6:46 pm EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

European financial markets closed before the collapse in the Greek debt talks and the US stock markets were not open for Presidents Day, so MoneyShow’s Jim Jubak suggests—if a compromise deal is to be made—look for it to come out of France.

Well, that didn’t go well.

Talks between Greece and the EuroGroup finance ministers collapsed today. Creditors are demanding that Greece agree to extend its current bailout package with the existing austerity measures intact before they will resume talks with Greece about any new financing. The new Greece government has branded this requirement as “absurd” and “unacceptable” and has refused to use the bailout package and austerity budget cuts negotiated by the last government as a basis for talks.

The current Greek 172 billion euro bailout program expires on February 28, and without a deal, Greece could run out of money by the end of March. A financial crisis could hit Greek banks even sooner, though, if the European Central Bank decides to shut down the 65 billion euro Emergency Liquidity Authority that enables Greek banks to raise and roll over short-term borrowings.

Today’s talks broke up after just 30 minutes. In his press conference, Greek Finance Minister Yanis Varoufakis blamed EuroGroup Chair and Dutch Finance Minister Jeroen Dijsselbloem for the collapse of the talks. Before the meeting, the European Union’s commissioner for economic and monetary affairs, Pierre Moscovici, had put forward a draft statement that Greece was ready to sign, Varoufakis said, but then Dijsselbloem put forward a different text that the Greeks could not accept.

But despite presenting that version of events, Varoufakis also told reporters that he is confident of achieving an agreement within 48 hours. One possible compromise floating around would have an agreement talk of a loan extension rather than a continuation of bailout program.

The European Central Bank is the player outside the negotiating room that holds the major cards. Last week, the central bank agreed to extend the short-term lending facility that lets Greek banks buy short-term debt that is then purchased by the Greek central bank and then financed by the European Central Bank when it accepts this debt as collateral for loans to the Greek national bank that are then extended back to Greek banks. This recycling is possible only as long as the European Central Bank agrees to accept this debt as collateral. And that permission is reviewed every two weeks. Without that loan facility, the Greek banking system—which is seeing steady outflows of cash—would quickly lurch toward insolvency. Estimates by JP Morgan today say Greek banks would run out of collateral in about 14 weeks.

The European financial markets closed today before the 7:00 PM (local time) collapse of the talks so they reflected a relatively optimistic belief in the possibility that the talks would yield an agreement. The euro was down slightly from Friday’s close of $1.1394 to $1.1346. The French stock market CAC index was off 0.16% and the German DAX was lower by 0.37%. The biggest retreat came in Athens, where stocks fell 3.83% on the day.

US stock markets were closed today. If there is to be a compromise deal, look for it to come out of France.

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