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28/09/2016

Another Eurogroup meeting on Greece ends in frustration

Euro & Finance

Another Eurogroup meeting on Greece ends in frustration

Dijsselbloem and Varoufakis. Brussels, 11 February. [European Council]

The second meeting of eurozone finance ministers to save Greece from default in two days, today (25 June) broke up without agreement after about two hours.

The Eurogroup meeting was supposed to “merge” the latest proposal from Greece with that of its creditors, the European Central Bank (ECB), the International Monetary Fund (IMF) and the EU.

Greek Finance Minister Yanis Varoufakis said that while some ministers backed Greece’s latest offer, others wanted to stick to the creditors’ proposal.

From Wednesday night to Thursday morning, Greece’s Prime Minister Alexis Tsipras together with Jean-Claude Juncker, ECB President Mario Draghi and IMF Chief Christine Lagarde worked on a deal to be presented to the finance ministers.

The new draft revealed that Greece had bowed down to creditors’ demands on the retirement age, moving it to 67 by 2022 instead of 2025, as they had initially proposed on Monday (22 June).

Despite that, finance ministers appeared to be unhappy with the proposal as it was too similar to an earlier Greek offer that was rejected.

Greece aims to raise €8 billion, mostly through new taxes on the wealthy and businesses, VAT increases and a cut in defence spending.

But in counter-proposals handed to Greece on Tuesday, creditors called for early retirement to be abolished, changes to the retirement age, changes to VAT, and increases in tax.

Ahead of today’s European Council summit of EU heads of state and government, scheduled to discuss migration and the British EU reform plans, Ireland’s Taoiseach Enda Kenny said the Greek proposal was not growth-friendly enough and that this was a constant frustration to finance ministers.

German Chancellor Angela Merkel said that she was hearing that the negotiations with Greece were going backwards. Those were her finance minister, Wolfgang Schäuble’s exact words earlier today.

An EU official said Eurogroup President Jeroen Dijsselbloem would briefly inform leaders at the European Council about the negotiations with Greece, and propose a new Eurogroup meeting for Saturday (27 June). That Eurogroup meeting would be the fifth meeting in 10 days.

Even if a deal can be agreed in principle, it will need further scrutiny to ensure it is legally sound.

The Greek government, elected in January, has vowed to end years of austerity imposed under two bailouts worth €240 billion. It has resisted demands by creditors for spending cuts and pension reforms.

But European-IMF lenders have refused to unlock the last €7.2 billion of Greece’s bailout before it expires on June 30. Greece needs to pay a €1.5-billion IMF loan repayment on that same day.

European Council President Donald Tusk warned last week of the growing risk of a “chaotic, uncontrollable Grexident” – Greece crashing out of the euro and perhaps also the EU, which it joined in 1981.

Background

The anti-austerity party Syriza won an overwhelming victory in the Greek elections on January 25, but failed to obtain an absolute parliamentary majority.

The party leader Alexis Tsipras provoked mixed reactions among his EU counterparts, announcing that the "vicious cycle of austerity is over".

Reforms offered by Athens have failed to convince the Eurogroup and the country's creditors, and Greece now finds itself unable to pay its debts and in a more precarious situation than ever.

The proposals were a bid to unlock the final €7.2 billion tranche of its international bailout, which creditors have refused to release unless Greece agrees to more austerity measures. Greek Prime Minister Tsipras was elected promising to end five years of austerity.

Without the bailout cash Greece will be unable to meet a €1.5 billion International Monetary Fund (IMF) payment on Wednesday (30 June), and a default could send Athens crashing out of the single currency and possibly the EU.

>>Read: LIVE: Greece edging towards default?

Timeline

  • 26 June: EU Council summit.
  • 27 June: Next Eurogroup meeting.