Greece faces last chance to stay in euro as cash runs out

Agencies
BRUSSELS, JULY 7

Greek Prime Minister Alexis Tsipras had a final chance to present credible reform proposals to an emergency euro zone summit on Tuesday to persuade skeptical creditors to reopen aid talks before his country’s banks run out of money.
With Greek lenders down to their last few days of cash and the European Central Bank tightening the noose on their funding, Tsipras must convince the bloc’s other 18 leaders, many of whom are exasperated with five years of crisis, to authorize negotiations fast on a new loan to rescue Greece.
But Greek officials said the leftist premier’s proposals would not go far beyond a plan he sent to the euro zone last week before Greek voters overwhelmingly rejected the austerity terms of a bailout in a referendum on Sunday.
The leaders of Germany and France, the currency area’s two main powers, said after conferring on Monday that the door was still open to a deal to save Greece from plunging into economic turmoil and ditching the euro.
Chancellor Angela Merkel, under pressure in Germany to cut Greece loose, made clear it was up to Tsipras to come up with convincing proposals after Athens spurned the tax rises, spending cuts and pension and labor reforms that were on the table before its 240 billion euro bailout expired last week.
European Commission President Jean-Claude Juncker, under suspicion from both sides for trying to broker a last-minute deal, told the European Parliament: “There are some in the European Union who openly or secretly are working to exclude Greece from the euro zone.”
He did not name names but may have been referring to German Finance Minister Wolfgang Schaeuble, who has made no secret of his scepticism about Greece’s fitness to stay in the euro and last week suggested a possible “temporary” exit.
From the Greek side, the key to making any deal politically acceptable will be to win a stronger commitment from Merkel and other lenders to reschedule Greece’s giant debt burden, which the International Monetary Fund says is unsustainable.
Without some firmer pledge of debt relief, neither Greece nor the IMF is likely to accept a deal. But that may be more than Germany and its northern allies can swallow.
Schaeuble said on arrival for a preparatory meeting of finance ministers that anyone who had read the EU treaty knew debt write-offs were forbidden in the euro zone. He did not rule out other forms of restructuring.
Asked about reports that Greece was seeking an immediate bridging loan of several billion euros, Italian Finance Minister Pier Carlo Padoan the creditors would listen to Greek requests.
“The door is open to negotiations, but there isn’t much time left and the situation is urgent both for Greece and for Europe,” French President Francois Hollande said in a joint media appearance with Merkel in Paris on Monday.
At stake at the emergency summit beginning at 6 p.m. in Brussels is more than just the future of Greece, a nation of 11 million that makes up just 2 percent of the euro zone’s economic output and population.
If Greek banks run out of money and the country has to print its own currency, it could mean a state leaving the euro for the first time since it was launched in 1999, creating a precedent and fuelling doubts about the long-term viability of an incomplete European monetary union.
“Even if it did not trigger a short-term domino effect, the integrity of the euro zone would come under fresh threat with each episode of political uncertainty within member countries,” said Thibault Mercier, an analyst at BNP Paribas.
Even in France, the euro zone country most sympathetic to Athens, an opinion poll published on Tuesday showed one in two people want Greece to leave the euro zone.
CONCESSIONS UNCLEAR
Strengthened by the overwhelming 61.3 percent ‘No’ vote in Sunday’s referendum, the leftist Tsipras won the unprecedented support of all other Greek party leaders on Monday and replaced his abrasive Finance Minister Yanis Varoufakis with the soft-spoken negotiator Euclid Tsakalotos.
Tsakalotos entered the euro zone finance ministers’ meeting without comment. Eurogroup chairman Jeroen Dijsselbloem said it was up to Greece to show a credible way forward.
“The pressure is especially on the Greeks, the banks are closed and the situation is difficult. I guess the Greek government has an interest in coming up with serious and credible solutions soon,” Dijsselbloem told reporters.
In an intensive round of telephone diplomacy, Tsipras spoke to the heads of the ECB, the IMF and the European Commission, as well as Merkel, Russian President Vladimir Putin and U.S. Treasury Secretary Jack Lew.
The United States, China and Japan all called for a solution in which Greece stays in the euro zone.
Tsipras gave little clue of what reform concessions he would make to try to convince deeply skeptical European leaders to lend Athens more money after five months of acrimonious and fruitless negotiations with his leftist administration.
Even with the country on the brink of economic collapse, Greek officials said the government was still seeking exceptions from its reform pledges for special interests.
Athens wants to keep a 30 percent discount on value added tax on Greek islands and delay defense spending from cuts, which rightist junior coalition partners the Independent Greeks have called “red lines”. It is also resisting raising VAT on restaurants to 23 percent, and wants to wait until 2019 to phase out an income supplement for poorer pensioners, officials said.
Juncker told EU lawmakers he was working night and day to get negotiations reopened and chided the Greeks for their aggressive approach, saying it was unacceptable to accuse the EU of behaving like “terrorists”, as Varoufakis did last week.
“Throwing Greece out of the monetary union or indeed the European Union is not something we want or indeed should want,” the EU’s chief executive said.
European Central Bank policymaker Ewald Nowotny suggested the bank might be able to provide some sort of bridge funding while Greece negotiated a longer-term conditional loan to see it over a crucial July 20 bond redemption to the ECB. Greek newspapers dramatized the make-or-break nature of the Brussels showdown.
Centrist daily Ethnos headlined: “Time has run out for a solution before catastrophe,” while the center-right Eleftheros Typos said: “Tsipras’ games finish at today’s council: Time of crisis: deal or Grexit.”
A clear majority of Greece’s 18 partners favor a hard line at the summit, arguing that they too are democracies and that Greeks should not get easier money because they had rejected the austerity terms, casting further doubt on whether they would implement any reforms agreed now.
The ECB left unchanged its emergency liquidity lifeline for Greek banks but raised the discount it charges on collateral they present for funds – a measure banking sources said was largely symbolic since the total they could borrow was capped.
A bank closure in force since the talks collapsed was prolonged until Thursday at least, and cash withdrawals remain limited to 60 euros a day, with 20 euro notes running out.
The Athens stock exchange was also ordered closed for two days in Tuesday and Wednesday to throttle speculation.