Euro zone leaders argued late into the night with near-bankrupt Greece
at an emergency summit, demanding that Athens enact key reforms this
week to restore trust before they will open talks on a financial rescue
to keep it in the European currency area.
Leftist Prime Minister Alexis Tsipras was told to push legislation
through parliament to convince his 18 partners in the euro zone to
release immediate funds to avert a state bankruptcy and start
negotiations on a third bailout programme estimated at up to 86 billion
euros ($95.5 billion).
Six sweeping measures including tax and pension reforms must be enacted
by Wednesday night and the entire package endorsed by parliament before
talks can start, a draft decision by Eurogroup finance ministers sent to
the leaders showed.
The document included a German proposal to make Greece take a "time-out"
from the euro zone if it fails to meet the conditions. But a senior EU
source said the idea was illegal and would be dropped from the summit
statement if Tsipras accepted other deeply unpalatable terms.
Tsipras said on arrival in Brussels he wanted "another honest compromise" to keep Europe united.
But German Chancellor Angela Merkel, whose country is the biggest
contributor to euro zone bailouts, said the conditions were not yet
right to start negotiations, sounding cautious in deference to mounting
opposition at home to more aid for Greece.
"The most important currency has been lost and that is trust," she told
reporters. "That means that we will have tough discussions and there
will be no agreement at any price."
If Greece meets the conditions, the German parliament would meet on
Thursday to mandate Merkel and Finance Minister Wolfgang Schaeuble to
open the talks on a new loan. Then Eurogroup finance ministers could
meet again on Friday or at the weekend to formally launch the
negotiations.
As the marathon summit dragged into early Monday morning, with breaks
for private meetings between Tsipras and the French, German and EU
leaders, markets in Asia-Pacific marked the euro down and bought
safe-haven bonds. The absence of deal in Brussels also hit pre-market
trading in the United States.
EU officials said the biggest of several sticking points was Germany's
insistence that Greek state assets worth 50 billion euros be placed in a
trust fund in Luxembourg to be sold off with proceeds going directly to
pay down debt. The EU says experts evaluate Greek assets earmarked for
privatisation at just 7 billion euros.
One diplomat said that was tantamount to turning Greece into a "German protectorate", stripping it of more sovereignty.
Another diplomat said Merkel had declared the matter a "red line" for
Germany and insisted that the International Monetary Fund be fully
involved in any third bailout for Greece, despite resistance from
Athens.
Tsipras, for his part, was insisting on a stronger commitment by the
creditors to restructure Greek debt to make it sustainable in the
medium-term.
An EU official said several options were being discussed to give Greece
bridging funds once it passed the laws, including releasing European
Central Bank profits on Greek bonds, tapping an emergency fund run by
the European Commission, or bilateral loans from friendly countries such
as France. Two official French sources denied that any bridging loan
was planned.
Finance ministers said Greece needed 7 billion euros of funding by July
20, when it must make a crucial bond redemption to the European Central
Bank, and a total of 12 billion euros by mid-August when another ECB
payment falls due.
Some diplomats questioned whether it was feasible to rush the package
through the Greek parliament in just three days. Tsipras is set to sack
ministers who did not support his negotiating position in a vote last
Friday and make dissident lawmakers in his Syriza party resign their
seats, people close to the government said.
TEMPORARY GREXIT?
Several hardline countries voiced support for the German proposal that
Greece take a five-year "time-out" from the euro unless it accepted and
implemented swiftly much tougher conditions.
But French President Francois Hollande, Greece's strongest ally in the
euro zone, dismissed the notion, saying it would start a dangerous
unravelling of EU integration.
Talks among the currency zone's finance ministers turned into what one
participant called "a kindergarten" before they were suspended without
agreement at midnight on Saturday, resuming more calmly on Sunday
morning after the French and German ministers met privately to clear the
air.
At one stage in the debate on Greece's debt sustainability, Germany's
Schaeuble snapped at ECB President Mario Draghi: "I'm not stupid," a
person familiar with the exchange said. Schaeuble also clashed with the
head of the euro zone bailout fund, Klaus Regling, on whether the EU
treaty conditions for an emergency loan were fulfilled, another source
said.
Those rules say there must be "a risk to the financial stability of the euro area as a whole or of its Member States".
GREEKS SEE HUMILIATION
Greece's new finance minister, Euclid Tsakalotos, was silent in public
but the reaction among some lawmakers in Tsipras's radical leftist
Syriza party, still smarting from having to swallow austerity measures
they had opposed, was furious.
"What is at play here is an attempt to humiliate Greece and Greeks, or
to overthrow the Tsipras government," said Dimitrios Papadimoulis, a
Syriza member of the European Parliament.
With banks shuttered for two weeks, cash withdrawals rationed and the
economy on the edge of an abyss, some Greeks vented their anger on
Merkel and Schaeuble.
"The only thing that I care about is not being humiliated by Schaeuble
and the rest of them" said Panagiotis Trikokglou, a 44-year-old private
sector worker in Athens.
Greece has already had two bailouts worth 240 billion euros from euro
zone countries and the International Monetary Fund, but its economy has
shrunk by a quarter since the crisis began, unemployment has soared
above 25 percent and one in two young people is out of work.
Athens defaulted on an IMF loan repayment last month and faces state
bankruptcy if it cannot make the bond redemption on July 20, which would
likely force the ECB to cut emergency funding for Greek banks.
Economists said the idea of a temporary exit would mean in practice ejecting Athens from the European monetary union.
Paul De Grauwe, a Belgian economist at the London School of Economics, compared it to a couple having a trial separation.
"Temporary Grexit is like temporary divorce. Most if not all end up being permanent," he said in a Twitter message.
The United States has added its voice to calls for a deal this weekend,
concerned at the geopolitical consequences if Greece were to be cut
loose and become a failed state in economic terms in the fragile
southern Balkans, adjoining the Middle East.
($1 = 0.9007 euros)
