EU Prepares for Worst as Greece Drives Finances to Brink

Updated on
Greek Debt: Will EU Pressure Bring Deal or Default?

European officials are preparing for the worst as Prime Minister Alexis Tsipras’s brinkmanship pushes Greece’s finances to the limit.

Chancellor Angela Merkel urged Tsipras to accept the framework for financial aid as the German public turns against supporting Greece and euro-area officials demanded a proposal for stabilizing the country’s debt by the end of Friday. The International Monetary Fund team left Brussels earlier this week, despairing of Tsipras’s tactics.

Bank stocks plunged as Greece ruled out pension cuts and demanded a debt restructuring. Later, Tsipras’s government said it was ready to submit another counter-proposal and send a delegation to Brussels on Saturday to bridge differences on its primary surplus target.

“People are really fed up with this,” UniCredit SpA Chief Global Economist Erik Nielsen said in a television interview. “They’ve never seen anything so completely ridiculous, frankly speaking, from a debtor country.”

After four months going round in circles, diplomatic niceties evaporated in Brussels on Thursday as EU President Donald Tusk rebuked Tsipras for dragging his feet on a debt agreement. Greece has less than a week to accept the conditions for aid, with the euro area due to withdraw its financial safety net at the end of the month.

Temperature Rising

With the pressure mounting, Tsipras spoke to EU Commission President Jean-Claude Juncker on the phone about the immediate next steps, according to a Greek government official, who asked not to be named in line with policy.

“Where there’s a will there’s a way, but the will has to come from all sides,” Merkel said in a speech to family-business leaders in Berlin. “That is why I think it’s right that we talk to each other again and again.”

Greek banks fell 11.8 percent in Athens. Greek bank stocks have lost about 55 percent since the previous government of Antonis Samaras began to unravel in December. The Athens Stock Exchange Index posted its biggest decline in four months, dropping 6 percent.

Battle lines were drawn on Thursday night at a working dinner of EU finance officials that set out the parameters of a likely showdown next week when their bosses meet in Luxembourg.

24 Hours

Greece was given less than 24 hours to come up with firm proposals to end the impasse, two officials present said. That would allow officials to review the plan over the weekend with a view to sealing a staff-level agreement by Tuesday, the officials said.

“If the Greek government isn’t willing to take difficult measures, even if they’re unpopular, then Greece will never be saved,” Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance chiefs’ meetings, told reporters in The Hague on Friday. “We’ve repeatedly explained to the Greeks how little time there still is.”

Finance ministers from the bloc meet in Luxembourg on June 18. Because some national parliaments need to ratify the agreement before funds can be disbursed, that’s the last chance for Greece to secure aid before the bailout expires at the end of the month, Tusk said on Thursday.

With the Greek representative telling the group he had no authority to negotiate and he couldn’t promise to meet that deadline, euro nations are also preparing to contain the fallout from a Greek default, the officials said.

Stop Playing

“There is no more time for gambling,” Tusk told reporters in Brussels on Thursday. “The day is coming, I am afraid, that someone says the game is over.”

Greece is ready to speed up talks as its creditors have demanded and is aiming to reach an agreement in the next few days, government spokesman Gabriel Sakellaridis said in an e-mail on Thursday as Finance Minister Yanis Varoufakis pushed back against Tusk’s criticism.

“Contrary to stubborn rumors, we never gambled,” Varoufakis said on Twitter.

Read this next:

Merkel is facing growing skepticism from her own party’s lawmakers and the German public about giving more money to Greece. In a survey of 1,230 voters conducted this week for broadcaster ZDF, 70 percent of respondents opposed making any further concessions to Greece and 51 percent said they wanted see Greece leave the euro. In a similar poll at the start of the year, 55 percent wanted Greece to stay.

“It’s important for the Greek government to not just communicate what they don’t want to do but to come up with alternative, credible proposals of what they want to do,” Commission Vice President Valdis Dombrovskis said in Madrid on Thursday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE