Greece bailout: Time is running out to avoid 'catastrophic' Greek exit from euro, warns EU

A new proposal from Athens will involve an extension of their loan agreement, but apparently without the required spending cuts and tax hikes

Greek Finance Minister Yanis Varoufakis (Getty Images)

Eurozone finance ministers and officials have warned that time is running out to avoid a “catastrophic” Greek exit from the single currency, as they awaited a new proposal from Athens aimed at keeping Greece afloat beyond the end of this month.

The finance ministers have given Greece until tomorrow to request an extension to their €240bn (£176bn) bailout programme, or the last tranche of money will be withheld and Greece will not be able to pay debts in the coming months. A spokesperson for Greek Prime Minister Alexis Tsipras has instead said they will today ask for an extension to their “loan agreement”.

The European part of Greece’s bailout expires on 28 February and if no deal is reached by then, the European Central Bank (ECB) would face pressure from eurozone governments to cut off emergency financing for Greek banks. Today the ECB reportedly agreed to increase those emergency funds by about £2.4bn to £50.3bn, money that is crucial because the banks’ customers have been withdrawing funds and sending them overseas.

EU officials were cautious and are waiting to see if Greece’s new proposal is a request for a bailout extension under a more politically palatable name for a Prime Minister elected last month on the promise of ending austerity. Greek government spokesman Gavriil Sakellaridis claimed that Athens’ plan would involve a loan extension but apparently without the required spending cuts and tax hikes. “We believe the terms of the bailout cannot continue by any means,” Mr Sakellaridis told Antenna TV.

Greek Finance Minister Yanis Varoufakis said: “I want to believe that [the negotiations] will end well tomorrow, the day after tomorrow. We are on a good path... [but] until we reach a result, nobody can be certain.”

Germany’s Finance Minister, Wolfgang Schäuble, seemed sceptical that the new proposal would require Greece to honour its existing financial commitments. “It’s not about extending a credit programme but about whether this bailout programme will be fulfilled.”

However, his French counterpart, Michel Sapin, said they had to do everything in their power to come up with a deal. A Reuters report yesterday suggested that Greece could run out of money by the end of March without assistance from its creditors.

“If we ever headed towards a Greek exit from the euro it would be a serious political failure,” Mr Sapin told parliament. “I want there to be a swift deal to avoid any catastrophic situation.”