Time is Merkel's weapon of choice against Greece

London - 

As Athens gathers itself for Wednesday's pivotal debt talks with eurozone chiefs, including Jean-Claude Juncker and Mario Draghi, a cool Angela Merkel is counting on time itself as her weapon against emerging indications of a deal that could topple her European vision.

As Athens rapidly moves through its initial round of meetings, broad support is emerging for new measures that give Greece space to grow and which threaten to thaw Merkel's reign of austerity.

In the early hours of this morning, Greek Prime Minister Alexis Tsipras added Rome's strong backing to his growing quiver, even as Prime Minister Matteo Renzi called for structural reform in Greece.

“The world is calling on Europe to invest in growth, not austerity,” Renzi said, pledging Athens his “greatest possible support, both in terms of bilateral co-operation and availability for dialogue”.

Meanwhile, European Commission chief Jean-Claude Juncker has been reticent to rule out specific measures ahead of initial negotiations.

“What I don't think we should do is simply replace what we already had with its exact opposite. That will basically send us to the wall,” Juncker said overnight, leaving the door open on a range of more modest compromise options.

“What we have done over recent years hasn't necessarily always taken account of growth. So, I do think we have to correct the errors we made in the past.”

Tellingly of European leaders' sentiment, both speeches were made the day after Athens revealed early outlines of its proposal for a program of growth-linked bonds.

Having seen Athens drastically revise its initial, off-the-wall pledge to obtain forgiveness for half of its €317 billion debt, the European Commission doesn't want to spurn the hope of productive compromise.

Meanwhile, the market, having priced in expectations for some form of debt restructure for much of the past week, was heartened by meaningful progress. Greek stocks clawed back over 7 per cent of last week's precipitous falls, while yields on Greek bonds fell back below 10 per cent.

But Merkel maintains that negotiations could take months to finesse, and time is not at all on Greece's side.

Calling, after the close of European markets, for a bridging loan to extend current facilities beyond their current expiration on February 28, Athens's hopes for a firm agreement ‘within days' look extremely tenuous.

So far, the market is not pricing in great risk of contagion, and any downturn in sentiment is likely, in the very near term, to continue hitting Greece harder than any of its neighbours.

Meanwhile, according to Bloomberg, preliminary data showed Greek banks suffering an outflow of €11bn worth of deposits in January, following an outflow of around €4bn in December, against total deposits of €160.3bn at the end of the calendar year.

That adds an extra kick of urgency to the reception of Athens's bond proposal over coming days. The two-tiered bonds scheme Greece is pushing would link its repayment obligations to economic growth at a floating rate, with counter-cyclical repayment levels enabling more spending on social welfare -- a second pillar of Tsipras's four-part election pledge -- until growth kicks in.

Private creditors -- who hold about one fifth of Greek debt -- would not be affected, Athens told investors in private London meetings on Monday.

Among other compromises, a loosening of the austerity measures tied to Greece's current bailout package may also gain support. In practical terms, Athens has already taken this path, reversing asset privatisation plans and re-hiring sacked public servants without public comeuppance from anyone but Berlin.

Meanwhile, Athens will be strengthened before meeting with the European Commission and ECB by its strategic scheduling of first-round debt talks. After first meeting with France and the UK, Tsipras can leverage their calls for Greek growth. Support from France, the union's second-largest economy and a critical proponent of Greece's initial eurozone inclusion, will add particular weight.

“Everyone understands that the punitive policies of austerity can no longer be a project for the European Union,” Manuel Valls told Greek Finance Minister Varoufakis. “We must continue to convince others that our ideas, which are also defended by President François Hollande, are indispensable [for Europe to escape] weak growth and unemployment that is dramatically too high.”

In turn, Tsipras will hope that negotiations with Juncker and Draghi strengthen his position ahead of tougher meetings with Spain and Portugal, and Thursday's talks with the German finance minister.

After these meetings a clearer timeline for the debt negotiations may finally emerge.