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Greece bailout talks break down after Athens rejects 'unacceptable' eurozone demands

Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, heightening concerns that the country is edging closer to a disruptive exit from the eurozone.

The breakdown of discussions in Brussels over the Greek bailout programme appeared to leave both sides as far apart as ever, although eurozone finance ministers said a last-ditch summit could be held on Friday.

However, the Greek delegation was told in no uncertain terms that talks would recommence only if the country was willing to extend its bailout package, which carries a list of austerity measures that the new left-wing government in Athens has vowed to pare back.

Effectively presenting Greece with an ultimatum, the eurogroup of eurozone finance ministers said Athens had until Friday to agree to maintain the current bailout under the auspices of the European Union, the European Central Bank and the International Monetary Fund - something that Greece has said is unacceptable.

Greece's finance minister, Yanis Varoufakis, made it clear in the acrimonious discussions in Brussels on Monday that Greece would not accept prolonging the bail out for six months unless the other 18 members of the eurozone agreed to water down the austerity conditions attached to the deal.

Varoufakis insisted that an "honourable agreement" was within reach for Greece, despite voicing strong criticism of unspecified advocates of Greece's current bailout, who were playing "games with the future of Europe".

"We are going to meet half way during the next couple of days," he said. "Europe will do the usual trick, it will pull a good agreement, an honourable agreement, out of what appears to be an impasse."

The Syriza-led coalition in Athens is convinced that, despite the tough language used by Germany, it can secure more favourable terms by holding out until closer to the 28 February deadline when its current 172bn (127bn) bailout expires.

But it ran the risk on Monday night of infuriating other eurozone members through its negotiating stance and by leaking the details of a draft agreement while the meeting was going on.

A Greek official described the draft agreement as "unacceptable" because it restated that Greece must continue in its current bailout programme. "The Greek authorities have indicated that they intend to successfully conclude the programme, taking into account the new government's plans," stated a phrase in the rejected communique, which had been crossed out.

Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, said there had been disappointment about the failure to find common ground. But he insisted that the Greek government had to make the next move by asking to continue in the bailout programme. "The next step has to come from the Greek authorities; they have to make up their mind." He said eurozone ministers were likely to meet on Friday, but this would be the last chance to get an agreement.

Recriminations began to fly after the meeting ended. Varoufakis accused Dijsselbloem of vetoing a more favourable deal for Greece that had been drawn up by the EU's executive arm, the European Commission. "We are ready and willing to reach an honourable agreement no one has the right to work towards a dead end especially one that is mutually detrimental for all Europeans."

He said Greece should not be asked to impose recessionary measures on its population. "Democracy changes the facts on the ground and we are a government that has a critique of the current programme."

Greece's current financing arrangements expire at the end of the month, but many eurozone parliaments would need several days to ratify any extension of the bailout.

Monday's negotiations, which had been expected to last through the night, broke up abruptly with the formal talks on Greece lasting barely two hours.

Varoufakis, an economics professor, who specialises in game theory, insisted Greece is not bluffing about its negotiating tactics. In an article in the New York Times on Monday he wrote: "I am often asked: What if the only way you can secure funding is to cross your red lines and accept measures that you consider to be part of the problem, rather than of its solution? Faithful to the principle that I have no right to bluff, my answer is: The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff."

Analysts warned that the risks of Greece leaving the euro were growing, and that the crisis could be triggered if the European Central Bank decided that the lack of progress required it to suspend financial support.

Jennifer McKeown, Senior European Economist at Capital Economics, said: "Comments from officials on both sides suggest that even a short-term deal has not been reached at today's Eurogroup finance ministers' meeting, adding to risks that Greece may exit the euro-zone."

She added that "if the ECB considers the talks to have stalled, there is a risk that it will suspend Emergency Liquidity Assistance, perhaps leaving Greece with no choice but to exit the euro-zone. And if nothing else, the difficulties of reaching an agreement even to meet Greece's immediate needs highlight just how difficult it will be to broker a deal on Greece's debt sustainability that would ensure its euro-zone membership over the longer term."

[Source: By Jennifer Rankin in Brussels and Larry Elliott in London, The Guardian, London, 16Feb15]

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