News Analysis: Greece proposes bridge agreement to ease default risk

Greek Finance Minister Yanis Varoufakis on Thursday expressed his willingness to have a bridging agreement which will help his country avoid instant debt default.

Speaking at a press conference, Varoufakis reiterated that Greece wants to let the current bailout agreement lapse at the end of the month.

"We want a bridging program until the end of May to have some breathing space," he added.

Apart from promising that Greece would overcome the debt-Default, Varoufakis called the payment schedule to be better structured and seeked an agreement with international lenders.

"We need technical, moral, political and institutional support from our European partners," he said.

Varoufakis' new proposal has offered hopes for Greece to avoid instant debt default, or at least addressed short-term concerns from all sides, analysts say.

The overall picture of Greece's economy is turning better, with the public debt-to-GDP ratio down to about 175 percent, a value below the 230 percent level recorded in 2012.

According to a research report by the Center for European Policy Studies (CEPS), the fiscal stance can relax in the coming years in Greece, given that interest expenditures will not represent a problem, especially after considering the financing needs.

If the new Greek government is willing to negotiate, the Troika -- the European Commission, the IMF and the European Central Bank (ECB) -- will be open to offering some concessions in exchange for a commitment to run a substantive primary surplus in the coming years, according to the CEPS report.

CEPS's report also noted that debt restructuring would be a political choice and not an unavoidable outcome.

In addition, the new decision of the ECB will not be a death penalty to Greek financial market.

The ECB put more pressures on Greece's financial system on Wednesday, announcing it will no longer accept securities "issued or guaranteed" by Greece as collateral from Greek banks in return for liquidity.

The decision is not surprising. The ECB had made it clear that it would not keep providing unlimited cash to Greek banks unless the new SYRIZA-led Greek government agreed to an extension of the EU-IMF bailout program.

Liquidity risk will obviously rise in Greece market, but not bad enough to lead to an economic disaster so far.

Silvia Merler, Affiliate fellow in think-tank Bruegle, said the ECB statement made clear that liquidity needs of banks that were to have no "sufficient alternative collateral" can be satisfied by the national central bank via Emergency Liquidity Assistance funding, which means Greek banks would not be cut off.

According to some research, Greek banks could use at most 8 billion euros (9.19 billion U.S. dollars) of government securities as collateral for their eurosystem borrowing. The rest could be collateralized using European Financial Stability Facility bonds and some uncovered government-guaranteed bank bonds, which amount to about 25 billion euros, meaning the debt-stricken countries has not run out of liquidity yet. (1 euro = 1.14 U.S. dollars) Endit