Yanis Varoufakis. In his hands lies the future of Europe, maybe. Credit: Carsten Koall/Bloombeg
Feb. 11, 2015 (Bloomberg Business) -- Tonight Greece's new finance minister, Yanis Varoufakis, is scheduled to make a proposal to his European Union counterparts. The importance of this negotiation would be hard to exaggerate: At stake is the future of the euro system.
The details of Greece's new offer on fiscal policy and debt will matter -- but not as much as a willingness on both sides to come to terms. So far, there's been too little sign of that. Greece and the rest of the EU have been talking as though Greece's exit from the euro system was an option they were willing to consider. That is a reckless message to send to investors.
Varoufakis continues to insist that Greece cannot and will not abide by the terms of the bailout program agreed to by the previous Greek government. When the program expires at the end of this month, Greece will refuse to extend it. Varoufakis wants a bridge loan while talks take place on the consolidation of Greece's enormous external debts. So far, the rest of the euro area has said, "No way."
Greece's initial position deserved a stone-faced response because it seemed to allow for no compromise: Greece's debts would have to be partly written off, whether Europe liked it or not. But on his tour of EU capitals last week, Varoufakis climbed a long way down from that. He now says Greece wants not outright forgiveness but further debt restructuring, including a swap into debts with repayment linked to growth rates. Rather than refusing to have policy conditions tied to the new deal, he's indicating that many of the reforms bundled into the existing bailout program will stay in place, together with some new ones.
These proposals aren't as bad as the initial pitch would have led you to expect. Actually, they make a lot of sense.
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