Rift Emerges as Europe Gears Up for New Talks on Greece Bailout
By LIZ ALDERMAN and JACK EWING
JULY 6, 2015
New York Times
Photo: Euclid Tsakalotos at a ceremony in Athens on Monday after he replaced Yanis Varoufakis as Greece’s finance minister.
ATHENS — Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingness to soften the push for austerity that has proved so contentious.
The growing rift among European leaders threatens to complicate any new negotiations, as the Greek government moves to restart talks for an international bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.
If a deal is not struck soon, Greece will probably default on a batch of international debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or i.o.u.s to pay its domestic bills, prompting it to leave the euro currency.
The country’s financial state is growing increasingly dire.
As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion euros, will not necessarily be sufficient to keep the money flowing to depositors.
Faced with a funding crisis, the government extended a weeklong bank holiday through Wednesday and said that a withdrawal cap of €60, or $67, per day from A.T.M.s could be tightened. On Monday, long lines formed again at cash machines throughout Athens as people continued to withdraw whatever funds they could.
Prime Minister Alexis Tsipras of Greece has moved quickly to take advantage of the vote results, making the first steps toward conciliation with the country’s creditors.
The combative finance minister, Yanis Varoufakis, abruptly resigned at Mr. Tsipras’s behest. He was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Mr. Varoufakis as Greece’s lead negotiator in April.
“I won’t hide the fact that I’m nervous and anxious,” Mr. Tsakalotos said at his swearing-in Monday.
“I understand that I’m assuming my post at a difficult time.”
The prime minister also persuaded most opposing political parties to back his basic demands from the country’s creditors.
After a six-hour meeting, the leaders of Greece’s five main political parties issued a statement saying they wanted any negotiation to include a discussion of relief from the country’s debt load — a key sticking point with creditors. They are also pushing for immediate help to keep the banks afloat, quick economic aid to tackle unemployment and new bailout money to cover current debt obligations.
In return, they said, Greece would be willing to deliver “credible reforms based on the fair distribution of the burden and the promotion of growth with the smallest possible recessionary impact.”
But the impasse over a bailout threatens to take on bigger dimensions, with implications for European unity.
Germany, the eurozone country to which Greece owes the most money, remained resistant. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point. The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.
Despite Germany’s tough stance, other European leaders seemed eager to avoid the specter of a Greek exit from the euro. While officials in France and Brussels said on Monday that they were unhappy and dumbfounded with the vote, they held the door open to the possibility of a compromise between Greece and its creditors.
At a news conference in Brussels on Monday, the European Commission’s vice president for euro affairs, Valdis Dombrovskis, said that the vote in Greece would “dramatically weaken” the country’s negotiating position with creditors and had made things “more complicated.”
So the people of Greece have democratically decided that the tax payers of the EU, especially the Euro-Zone, have to keep on supplying them with billions of Euros, but from now on without guarantees, control and conditions.
But now was the time to seek a way forward, he added, saying: “If all sides are working seriously, it’s possible to find a solution, even in this very complicated situation.”
In France, the finance minister, Michel Sapin, told French radio that while Greece’s vote “resolves nothing,” France could support debt relief for Greece should Mr. Tsipras come forward with a proposal containing “serious” terms for a new bailout package. Mr. Sapin’s remarks came ahead of a meeting set for Monday evening in Paris between President François Hollande of France and Ms. Merkel to discuss how to deal with Greece.
Both leaders called on Greece to submit urgent proposals to avoid a possible exit from the eurozone. The Greek government said that Mr. Tsipras and Ms. Merkel agreed that he would present new debt proposals on Tuesday, when eurozone leaders are set to meet in Brussels.
The eurozone finance ministers planned to meet in Brussels on Tuesday afternoon to discuss the offer by Athens to resume discussions. They might then pass along any recommendations to the heads of state meeting on Tuesday evening. Because the deadline for the country’s second bailout package has lapsed, any talks would most likely focus on the terms for a third aid package for the country.
In the meantime, the financial situation in Greece is rapidly growing more tenuous.
Greek banks could continue to limp along for a few more weeks. But they may face an existential crisis at the end of the month if the Greek government does not make a payment of €3.5 billion due July 20 on bonds held by the European Central Bank. That would seem nearly impossible unless Greece gets some financial aid.
A missed payment to the central bank would signal unmistakably that the government is bankrupt. It would drag the Greek banks down, too, since they would suffer huge losses on their portfolios of the country’s government bonds.
The weak link in the 19-nation eurozone is struggling to tame its debt. On Sunday, Greeks decisively rejected in a referendum the terms of an international bailout.
The European Central Bank would have little choice but to stop providing emergency loans that have been keeping the banking system afloat. The central bank is not allowed to lend to insolvent banks.
“The moment of truth will be no later than July 20,” said Wilbur Ross, an American investor who owns a large stake in Eurobank Ergasias, the third-largest bank in Greece. “A default there would likely force the E.C.B. to come down on the banks.”
Ominously, the central bank also said on Monday that it would tighten requirements for collateral that Greek banks must post in return for loans. The move means that, even if the European Central Bank decides to later increase the lending limit, Greek banks might not have enough collateral to qualify for more emergency cash.
The decision, a concession to hard-liners on the central bank’s Governing Council, was a sign the central bank is worried about losses it will suffer if Greek banks fail.
Bankers in Athens are beginning to worry that without additional aid, banks could run out of cash on Friday, according to Stefanos Kotronakis, who works in Athens for ACI Worldwide, a company that provides payment processing services for banks and A.T.M.s.
“The situation from a liquidity perspective is really critical,” said Mr. Kotronakis, country manager for the company.
People can continue to use debit and credit cards and make electronic transfers within Greece. But Mr. Kotronakis said many merchants insist on cash, in part because they are not sure that their money is safe in a bank.
Without a banking system serving as a conduit for euros and a platform for transactions, Greece might have little choice but to begin printing its own currency.
Liz Alderman reported from Athens and Jack Ewing from Frankfurt. Niki Kitsantonis contributed reporting from Athens.
JULY 6, 2015
New York Times
Photo: Euclid Tsakalotos at a ceremony in Athens on Monday after he replaced Yanis Varoufakis as Greece’s finance minister.
ATHENS — Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingness to soften the push for austerity that has proved so contentious.
The growing rift among European leaders threatens to complicate any new negotiations, as the Greek government moves to restart talks for an international bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.
If a deal is not struck soon, Greece will probably default on a batch of international debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or i.o.u.s to pay its domestic bills, prompting it to leave the euro currency.
The country’s financial state is growing increasingly dire.
As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion euros, will not necessarily be sufficient to keep the money flowing to depositors.
Faced with a funding crisis, the government extended a weeklong bank holiday through Wednesday and said that a withdrawal cap of €60, or $67, per day from A.T.M.s could be tightened. On Monday, long lines formed again at cash machines throughout Athens as people continued to withdraw whatever funds they could.
Prime Minister Alexis Tsipras of Greece has moved quickly to take advantage of the vote results, making the first steps toward conciliation with the country’s creditors.
The combative finance minister, Yanis Varoufakis, abruptly resigned at Mr. Tsipras’s behest. He was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Mr. Varoufakis as Greece’s lead negotiator in April.
“I won’t hide the fact that I’m nervous and anxious,” Mr. Tsakalotos said at his swearing-in Monday.
“I understand that I’m assuming my post at a difficult time.”
The prime minister also persuaded most opposing political parties to back his basic demands from the country’s creditors.
After a six-hour meeting, the leaders of Greece’s five main political parties issued a statement saying they wanted any negotiation to include a discussion of relief from the country’s debt load — a key sticking point with creditors. They are also pushing for immediate help to keep the banks afloat, quick economic aid to tackle unemployment and new bailout money to cover current debt obligations.
In return, they said, Greece would be willing to deliver “credible reforms based on the fair distribution of the burden and the promotion of growth with the smallest possible recessionary impact.”
But the impasse over a bailout threatens to take on bigger dimensions, with implications for European unity.
Germany, the eurozone country to which Greece owes the most money, remained resistant. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point. The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.
Despite Germany’s tough stance, other European leaders seemed eager to avoid the specter of a Greek exit from the euro. While officials in France and Brussels said on Monday that they were unhappy and dumbfounded with the vote, they held the door open to the possibility of a compromise between Greece and its creditors.
At a news conference in Brussels on Monday, the European Commission’s vice president for euro affairs, Valdis Dombrovskis, said that the vote in Greece would “dramatically weaken” the country’s negotiating position with creditors and had made things “more complicated.”
So the people of Greece have democratically decided that the tax payers of the EU, especially the Euro-Zone, have to keep on supplying them with billions of Euros, but from now on without guarantees, control and conditions.
But now was the time to seek a way forward, he added, saying: “If all sides are working seriously, it’s possible to find a solution, even in this very complicated situation.”
In France, the finance minister, Michel Sapin, told French radio that while Greece’s vote “resolves nothing,” France could support debt relief for Greece should Mr. Tsipras come forward with a proposal containing “serious” terms for a new bailout package. Mr. Sapin’s remarks came ahead of a meeting set for Monday evening in Paris between President François Hollande of France and Ms. Merkel to discuss how to deal with Greece.
Both leaders called on Greece to submit urgent proposals to avoid a possible exit from the eurozone. The Greek government said that Mr. Tsipras and Ms. Merkel agreed that he would present new debt proposals on Tuesday, when eurozone leaders are set to meet in Brussels.
The eurozone finance ministers planned to meet in Brussels on Tuesday afternoon to discuss the offer by Athens to resume discussions. They might then pass along any recommendations to the heads of state meeting on Tuesday evening. Because the deadline for the country’s second bailout package has lapsed, any talks would most likely focus on the terms for a third aid package for the country.
In the meantime, the financial situation in Greece is rapidly growing more tenuous.
Greek banks could continue to limp along for a few more weeks. But they may face an existential crisis at the end of the month if the Greek government does not make a payment of €3.5 billion due July 20 on bonds held by the European Central Bank. That would seem nearly impossible unless Greece gets some financial aid.
A missed payment to the central bank would signal unmistakably that the government is bankrupt. It would drag the Greek banks down, too, since they would suffer huge losses on their portfolios of the country’s government bonds.
The weak link in the 19-nation eurozone is struggling to tame its debt. On Sunday, Greeks decisively rejected in a referendum the terms of an international bailout.
The European Central Bank would have little choice but to stop providing emergency loans that have been keeping the banking system afloat. The central bank is not allowed to lend to insolvent banks.
“The moment of truth will be no later than July 20,” said Wilbur Ross, an American investor who owns a large stake in Eurobank Ergasias, the third-largest bank in Greece. “A default there would likely force the E.C.B. to come down on the banks.”
Ominously, the central bank also said on Monday that it would tighten requirements for collateral that Greek banks must post in return for loans. The move means that, even if the European Central Bank decides to later increase the lending limit, Greek banks might not have enough collateral to qualify for more emergency cash.
The decision, a concession to hard-liners on the central bank’s Governing Council, was a sign the central bank is worried about losses it will suffer if Greek banks fail.
Bankers in Athens are beginning to worry that without additional aid, banks could run out of cash on Friday, according to Stefanos Kotronakis, who works in Athens for ACI Worldwide, a company that provides payment processing services for banks and A.T.M.s.
“The situation from a liquidity perspective is really critical,” said Mr. Kotronakis, country manager for the company.
People can continue to use debit and credit cards and make electronic transfers within Greece. But Mr. Kotronakis said many merchants insist on cash, in part because they are not sure that their money is safe in a bank.
Without a banking system serving as a conduit for euros and a platform for transactions, Greece might have little choice but to begin printing its own currency.
Liz Alderman reported from Athens and Jack Ewing from Frankfurt. Niki Kitsantonis contributed reporting from Athens.
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