Greece and lenders 'playing chicken' over euro exit

The stand-off between Greece and its lenders deepened over the weekend ahead of a meeting of euro finance ministers on Friday (24 April), with both sides exchanging barbs over the risk of a Greek default and its consequences for the eurozone.

On Friday, Eurogroup president Jeroen Dijsselbloem i said both parties should avoid "a game of chicken to see who can stick it out longer. We have a joint interest to reach an agreement quickly".

It is, however, precisley what they are doing.

EU and International Monetary Fund (IMF) leaders warned that Greece had to make quick progress to finalise a list of reforms that would enable it to receive a €7.2 billion loan.

But they hinted that a Greek default could be managed by the eurozone.

"More work, I say much more work is needed now. And it's urgent," said European Central Bank (ECB) chief Mario Draghi i in Washington, where he was attending the IMF’s Spring meeting.

"We are better equipped than we were in 2012, 2011, and 2010," he added, referring to the years when fears of a eurozone break-up were at a high.

"Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it," Draghi also said.

French finance minister Michel Sapin was even clearer in warning that Greece has more to lose.

"If something damaging happens, it will be for Greece that it will be serious, for the Greek people, not for the other countries of the eurozone," Sapin told reporters in Washington.

Greek finance minister Yanis Varaoufakis, for his part, warned that his country's exit would cause major problems for the rest of the region.

"Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of the eurozone to carry on," he said on Spain’s La Sexta channel

"Once the idea enters peoples' minds that monetary union is not forever, speculation begins ... who's next? That question is the solvent of any monetary union. Sooner or later it's going to start raising interest rates, political tensions, capital flight."

In Athens, Greek ministers repeated that the government is not ready to agree to everything the lenders ask.

"There is no way we would cross red lines that we have set," said Greek deputy prime minister Yiannis Dragasakis in an interview with To Vima.

Dragasakis hinted at possible snap elections or a referendum if no agreement is found.

On Saturday, quoting sources in Athens, Germany’s Der Spiegel reported that Greece would sign on Tuesday a gas deal with Russia.

The deal would see Greece participate in the Russia-led Turkish Stream pipeline project, in return for a €3 billion to €5 billion loan which would be repaid in 2019, once the pipeline is completed.

But the report was denied by president Vladimir Putin’s spokesman in Moscow.

With Greece risking a default in May, when it has to repay €4 billion in loan and bonds, talks with the eurozone are still in a deadlock.

Athens continues to refuse the reforms demanded for its labour market, pensions, and VAT, and to undertake privatisations. Meanwhile, EU and IMF experts say Greece is still not providing enough details on its finances.

Technical talks were held over the weekend and a euro working group, at deputy finance minister level, is to take place on Wednesday.

This meeting will not bring an agreement that would allow finance ministers meeting in Riga on Friday to decide to unblock a new loan for Greece.

But it will be an opportunity to defuse what could become an out-of-control situation.