Greece enters what could be a defining week after last-ditch negotiations between representatives of the Greek government and its creditors collapsed on Sunday.
The euro dropped as the European Commission said the talks in Brussels had broken up after just 45 minutes with the divide between what creditors asked of Greece and what its government was prepared to do unbridged. The focus now shifts to a June 18 meeting in Luxembourg of euro-area finance ministers, known collectively as the Eurogroup, that may become a make-or-break session deciding Greece’s ability to avert default and its continued membership in the 19-nation euro area.
“While some progress was made, the talks did not succeed as there remains a significant gap,” the commission said in a text message. “On this basis, further discussion will now have to take place in the Eurogroup.”
The latest failed attempt to find a formula to unlock as much as 7.2 billion euros ($8.1 billion) in aid for the anti-austerity government of Prime Minister Alexis Tsipras brings Greece closer to the abyss. With two weeks until its euro-area bailout expires and no future financing arrangement in place, creditors had set June 14 as a deadline to allow enough time for national parliaments to approve an accord.
The euro dropped 0.4 percent to $1.1219 in early trading on Monday in New Zealand on news of the breakdown. Greek bank stocks led the decline at the end of last week as the Athens Stock Exchange Index posted its biggest drop in four months.
Failure to reach a deal in Luxembourg wouldn’t necessarily spell the end of the road for Greece. Assuming the government has enough cash tucked away, its finances could survive until July, when it owes about 3.5 billion euros in redemptions on bonds held by the European Central Bank. Thursday’s meeting is still key to any resolution, with incalculable consequences for Greece and the euro region if the sides remain deadlocked.
“The shadow of a Greek exit from the euro zone is becoming increasingly perceptible,” German Vice Chancellor and Economy Minister Sigmar Gabriel wrote in an op-ed to be published in Bild on Monday. “Greece’s game theorists are gambling the future of their country. And Europe’s too.”
More than four months after he was swept into office on a wave of public discontent about budget cuts that deepened a six-year Greek recession, Tsipras has refused to meet the demands of the euro area and the International Monetary Fund. The core points of contention are pension cuts, tax rises and targets for a budget surplus before interest payments, known as a primary surplus.
Tsipras had sent a delegation to Brussels with proposals to narrow the differences. The commission, the European Union’s executive arm, said the weekend talks were President Jean-Claude Juncker’s “last attempt” to reach a compromise.
“The Greek proposals remain incomplete,” the commission said after Sunday’s session. The gap between the parties on fiscal measures needed is “in the order” of 2 billion euros annually, according to the commission.
The Greek government blamed the euro area and the IMF, which together finance Greece’s 240 billion-euro rescue program first drawn up in 2010, for sticking with demands that it says are economically senseless and politically unacceptable.
Greece’s creditors insisted that the difference between the two sides on the size of the primary surplus needed to be covered entirely by pension cuts and increases in value-added tax, Greek Deputy Prime Minister Yannis Dragasakis said in an e-mailed statement on Sunday. He was part of the Greek delegation in Brussels.
Finance Minister Yanis Varoufakis said in an interview with Bild newspaper published Monday that Greece would only be able to pay back its debt if creditors accept a restructuring to reduce the amount owed. An agreement could be reached “in one night” if German Chancellor Angela Merkel took part in the talks, he told Bild.
As the deliberations in Brussels were taking place, lawmakers from across the political divide in Germany, the biggest country contributor to Greece’s aid, united to issue the most explicit warnings yet that Greece is at risk of exiting the euro.
“A Grexit must be factored in if the Greek government doesn’t do what it’s long been called upon to do,” Michael Grosse-Broemer, the parliamentary whip for Chancellor Angela Merkel’s Christian Democratic-led bloc, said in a ZDF television interview on Sunday.
Gabriel, the leader of Merkel’s Social Democratic Party coalition partner, who in February urged patience and dialogue with Greece, was more direct.
“We will not let the German workers and their families pay for the overblown election promises of a partially communist government,” he said.
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