Greek
default fears rise as ‘eleventh-hour’ talks collapse
Peter Spiegel in
Brussels and Kerin Hope in Athens
Talks aimed at
reaching an 11th-hour deal between Greek ministers and their bailout
creditors collapsed on Sunday evening after a new economic reform
proposal submitted by Athens was deemed inadequate to continue
negotiations.
The breakdown is the
clearest sign yet that differences between the two sides may be too
wide to breach, increasing the possibility that Athens will not
secure the €7.2bn in bailout aid it needs to avoid defaulting on
its debts — including a €1.5bn loan repayment due to the
International Monetary Fund in just two weeks.
Greek negotiators,
including Nikos Pappas, aide-de-camp to Prime Minister Alexis
Tsipras, left the European Commission only 45 minutes after entering.
A commission
spokesman said there remained a “significant gap” between the
sides, amounting to up to €2bn per year, and there was no longer
time to reach a “positive assessment” of Greek efforts before a
meeting of eurozone finance ministers on Thursday.
“While some
progress was made, the talks did not succeed,” said the spokesman.
“On this basis, further discussion will now have to take place in
the eurogroup.”
The eurogroup
meeting is seen by many officials as the last chance for Athens to
secure agreement on a list of economic reforms its creditors are
demanding in order to release the €7.2bn before Greece’s EU
bailout runs out at the end of the month.
Without the
endorsement of Greece’s trio of bailout monitors — the
commission, the International Monetary Fund and the European Central
Bank — the chances of an amicable agreement on Thursday are remote,
raising the prospect eurozone negotiators may resort to the “take
it or leave it” strategy used on Cyprus at a eurogroup meeting two
years ago.
On that occasion, an
ECB representative warned that without a deal, it would be forced to
cut all emergency funding to Cypriot banks — essentially laying
waste to the country’s financial system. The ECB has faced pressure
in the past week to take the same stance with Athens.
One senior official
involved in the talks said there could still be a compromise on
Thursday if Greek negotiators “go back to Athens and say, ‘Oh
shit, we have to do something’.” But the official acknowledged
such a U-turn was unlikely.
Yannis Dragasakis,
deputy prime minister and head of the negotiating team in Brussels,
said after the talks broke up that Athens remained “ready” to
complete the negotiations and blamed Greece’s creditors for being
intransigent in their insistence on pension cuts and increases in the
country’s value added tax that Athens believe will hit essential
services.
“In spite of the
presence of the Greek mission in Brussels, there was no response on
the part of the [bailout monitors] for discussions at the same
[political] level or authorisations that would permit a solution to
the issues that remain open,” Mr Dragasakis said.
In a sign of how far
attitudes had shifted, Sigmar Gabriel, Germany’s vice-chancellor
and head of the country’s Social Democratic party — long seen as
a more conciliatory political group — penned an article for
Monday’s daily Bild newspaper in which he warned patience towards
Greece in Germany was running thin.
“The game
theorists of the Greek government are in the process of gambling away
the future of their country,” Mr Gabriel wrote, in a thinly veiled
dig at Yanis Varoufakis, the Greek finance minister who is an expert
on game theory. “Europe and Germany will not let themselves be
blackmailed. And we will not let the exaggerated electoral pledges of
a partly communist government be paid for by German workers and their
families.“
The Sunday night
talks were scheduled after Greek ministers, who had travelled to
Brussels on Saturday, were told their final plan had to be submitted
by the end of the weekend.
According to a Greek
government official, the new Athens counterproposal included no new
cuts in public sector pensions or increases in taxes on electricity —
positions that have been rebuffed by creditors for weeks.
For nearly two
weeks, creditors have been asking Athens to come back with a
counterproposal that would fit within a broad programme outline that
sets a gradually increasing set of budget surpluses.
Under the creditors’
plan, Athens would need to find measures to hit a primary budget
surplus — revenues less expenses when interest on sovereign debt is
not counted — of 1 per cent of gross domestic product this year,
rising to 2 per cent next year and 3 per cent in 2017. By 2018, the
primary surplus would need to hit 3.5 per cent.
Athens has objected
to pension cuts and energy tax increases, and has countered with a
slower path to the 3.5 per cent target in 2018: 0.75 per cent this
year, 1.75 per cent next year and 2.5 per cent in 2017.
A commission
spokesman said the differences remained at about 0.5-1 percentage
point of GDP per year.
The impasse prompted
the IMF on Sunday to take the unusual step of going public with a
justification of its demands on both sides.
Both Greece and its
European creditors needed to make “tough choices, and tough
commitments,” wrote Olivier Blanchard, the outgoing chief
economist.
“We are open to
alternative ways for designing both the VAT and the pension reforms,
but these alternatives have to add up and deliver the required fiscal
adjustment.”
But he added that
European creditors also needed to agree to “significant additional
financing, and to debt relief.”
Any relaxation of
the surplus targets offered to Greece in the creditors’ latest
offer would require eurozone governments to write down a portion of
their bailout loans in order to ensure Greek debt started coming down
to sustainable levels.
“We believe that,
under the existing proposal, debt relief can be achieved through a
long rescheduling of debt payments at low interest rates,” Mr
Blanchard wrote. “Any further decrease in the primary surplus
target, now or later, would probably require, however, haircuts.”
Additional reporting
by Chris Bryant in Frankfurt
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