What led to the breakdown between Athens and Brussels?

The current preconditions would guarantee sustainability in the Greek economy and also mean that repayment of European and bilateral loans are made. According to Finance Minister Yanis Varoufakis, there is a need for “a completely new contract between two equals”.

Europe´s new rockstar politician had agreed a draft with Economic Commissioner Pierre Moscovici to afford the indebted country a transitional stage for reform implementation. The Eurogroup President, Jeroen Dijsselbloem, was supposed to erase the reference “to contain the humanitarian crisis” but also included reference to “a six month technical extension of the current programme”,  which were among other changes made at the last moment.

“We are prepared to offer a number of ‘conditionalities’ for the purpose of building trust”, Varoufakis explained. He went on “unfortunately the document that I was prepared to sign was withdrawn minutes before the Eurogroup began”.

In a private conversation, a source from the Greek delegation confirmed that point. “A draft was rejected by the Greek side as not in accordance with what was discussed and agreed so far”, the official claimed.

The first document also speaks about the loan agreement rather than the current programme in Dijsselbloem’s version. The second bailout expires on 28^th February. If the troika do not disburse the €7.2 billion of foreign credit to Greece, the country could run of of financing in weeks. With credit markets still inaccesible, Athens wants to use the primary budget surplus to continue running the country.

Speaking recently in Brussels, John Milios, Syriza chief economist, worked out three points of  fiscal manouevre which could garner €5.5 billion. This would be achieved by reducing the troika’s requirement of a 4.5% surplus to 1.5% that the goverment is suggesting. The figures will have to be agreed with the cuntry´s lenders, an eventuality that is unlikely to materialise.

“There were no figures or concrete measures discussed last weekend during the negotiations that we held”, according to a source from one of the troika institutions. He added that “the situation we are living is a little bit surreal”,  in reference to the short Eurogroup meeting.

Brussels and other Member States are accusing Athens of lacking a detailed plan to start negotiations. Varoufakis stated that Greece did not want to raise VAT or cut pensions during the period of an extended bailout. With these huge differences, it made little sense to negotiate until midnight, with agreemnet at this point looking increasingly unlikely.