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03/12/2016

Talks with Greece collapse as default looms

Euro & Finance

Talks with Greece collapse as default looms

At an impasse: Alexis Tsipras and Jean-Claude Juncker. [Reuters]

Default by debt-wracked Greece loomed dangerously closer after last-ditch talks between Athens and its EU-IMF creditors collapsed on Sunday (14 May), bringing the threat of a Greek exit from the euro closer than ever.

The crunch negotiations failed in their second day, heaping worry that the cash-starved Greek government was heading irreversibly into a financial abyss with a huge IMF debt payment due at the end of the month.

Greece is a cow slipping on ice that must be pushed to firm ground, says European Commission head Jean-Claude Juncker, employing a rustic metaphor for painful days of trying to save headstrong Athens from default and catastrophe.

Alexis Tsipras, the 40-year old Greek premier, whose latest reforms-for-cash proposal was roundly dismissed as 46 pages of “leftist ideology” by exasperated European officials, was treading dangerous waters.

Europe’s negotiators are weary of the young man’s manoeuvering, even though the good-natured Juncker always tousles his hair or pecks him on the cheek when he joins Tsipras for the cameras

“They came with their hands in their pockets,” a furious EU source close to the negotiations told AFP, while Greek officials said the failure was the fault of the International Monetary Fund, the country’s most hardline creditor.

“The demands of the creditors are irrational, the discussions lasted 45 minutes,” an irate Greek government source said.

>>Read: Greece hopes for a deal after being told ‘the game is over’

The deadlock drove the euro down in Tokyo morning trade Monday, with the single currency dropping to $1.1213 and 138.50 yen from $1.1260 and 138.92 yen in New York late Friday. However analysts said it was unlikely the euro would take a plunge as investors were in a “wait-and-see mood”.

All sides had agreed that the talks were the last chance for Athens to unlock vital bailout cash in return for tough reforms that Tsipras still doggedly refuses.

The IMF’s position was “intransigent and tough” because it was insisting on further pension cuts and a rise in value-added tax on basic goods, like electricity, the Athens source added.

But in a rare statement on their position in the talks, the IMF took a conciliatory approach, writing in an official blog that a deal would require “difficult decisions by all sides” — including Greece’s European partners.

Nevertheless chief economist Olivier Blanchard insisted that Greece must tackle its bloated pension system, which he said accounted for a whopping 16% of the country’s economy.Greece is shattered economically after six years of crisis and despite two rescue programmes since 2010, worth €240 billion, mostly in loans owed to its European partners, led by Germany and France.

The small Mediterranean nation is now buried under a mountain of debt equivalent to 180% of GDP, or almost twice the country’s annual economic output.

According to an EU source, savings from the reform measures put on the table by anti-austerity Greece fell short by two billion euros.

Greek proposal ‘incomplete’

The Greek proposal “remains incomplete”, the EU source said, and was not enough to unlock the 7.2 billion euros still remaining in Greece’s international bailout, which expires on June 30.

Also at the end of the month, Greece faces a huge €1.6 billion payment to the IMF with another €6.7 billion due to the European Central Bank in July and August, which Greek officials have said the government cannot afford.

“On this basis further discussions will now take place in the Eurogroup,” the EU spokesperson said, referring to a meeting of eurozone finance ministers set for Thursday in Luxembourg.

Juncker “remains convinced that with stronger reform efforts on the Greek side and political will on all sides, a solution can still be found before the end of the month,” the spokesperson said.

>>Read: France and Italy are next, warns Greek premier

Greek Finance Minister Yanis Varoufakis told Bild in an interview published today that a deal was still possible and could even be concluded “in one night” if German Chancellor Angela Merkel were in attendance.

All eyes will be on the financial markets with the feeling now stronger than ever that Greece could be finally heading for an exit from the euro after five years of crisis.

To meet the June 30 deadlines, a reform deal would have to be resolved by the Thursday meeting of the eurozone’s 19 finance ministers, who control the bailout purse strings. But any deal also needs to go to many national parliaments, including in European paymaster Germany, where passage is not certain.

Up to the collapse of talks, playing hardball seemed to have been working with Athens easing up, at least verbally, on the leftist Syriza government’s anti-austerity platform.

“We had promised to negotiate hard with our partners during our election campaign and that’s what we did,” Economy Minister Giorgos Stathakis was quoted as saying in the Avghi newspaper on Sunday. But “the idea of a rupture (with Europe) is not in our mandate,” he added.

(EurActiv.com with AFP)

Background

On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2.0 billion in unused EU structural funds to Greece.

>> Read: Greece promises to deliver full reform list after three-hour 'mini summit'

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

>> Read: Eurozone approves Greek reform plan with reservations

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the Troika of EU, ECB and IMF inspectors, which are now called "the institutions".

>> Read: Greece, eurozone agree to four-month loan extension, avert crunch