With just nine days until the current deal ends, Germany refuses Greece’s request for six-months of bridge financing

Greece looks like it’s one step closer to printing drachmas after Germany rejected its proposal for a six-month extension to the eurozone loan program. The request had been seen as a sign that Greece was still interested in reaching a compromise after this week’s Eurogroup meeting failed to find any common ground, but Germany’s rejection implies that there may not be a deal to be had.

Morgan Stanley Greece scenarios

Germany calls Greek request for an extension ‘bridge financing’

Yesterday Greek finance minister Yanis Varoufakis sent a letter Jeroen Dijsselbloem, Dutch finance minister and head of the Eurogroup, requesting a bailout extension, which European Commission President Juncker saw as a positive sign.

But the German finance ministry called it a request for “bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the Eurogroup on Monday,” BBC reports.

The language here is important. Varoufakis’ letter essentially asks for an extension of the financing that’s keeping the country from going bankrupt, but not the Troika reforms that go along with it. His intention is to use that six-month period to put his own reforms into place and renegotiate a new, permanent deal with the Troika (IMF, EU, and ECB). Germany wants an extension of the existing deal instead.

Greece may opt for default over the current program

There’s been a lot of debate about whether Varoufakis and Greek Prime Minister Alexis Tsipras are bluffing, or if they’re really willing to go into default. No doubt governing is different than campaigning, but a quick look at the finance minister’s blog shows what he thinks of the previous loan agreement. It’s hard to imagine him backing down, even if the other options look extremely grim.

Whatever happens, we don’t have to wait long to find out. The European Central Bank has renewed Greece’s ELA facility, kicking that particular can down the road a few weeks, but the current bailout ends on February 28, and bank deposits are emptying so quickly that Greek banks may go bust by the end of the month as well.

The Greek economy has fallen by a quarter since before the crisis, unemployment is at 26%, and the labor force participation rates are around 55%. Warnings that the Greek economy could fall apart following a default may not be having the intended effect because the economy has already fallen apart by essentially any standard.