This article appeared
at The Guardian
Greece faces banking crisis after eurozone meeting breaks down
Emergency summit of leaders called for Monday as fears rise for Greek financial system if a deal cannot be reached
Greece's Yanis Varoufakis with Christine Lagarde of the IMF during a meeting of eurozone ministers. Photograph: Francois Lenoir/Reuters
Greece is facing a full-blown banking crisis after a meeting of eurozone finance ministers broke down in acrimony and recrimination on Thursday evening, bringing the prospect of Greek exit from the eurozone a step nearer.
Eurozone talks end without deal as Greek proposals rejected
Some €2bn of deposits have been withdrawn from Greek banks so far this week – including a record €1bn yesterday – triggering fears that a breakdown in talks would spark a further flight of funds. The German leader Angela Merkel, French president François Hollande and Greek prime minister Alexis Tsipras agreed to stage an emergency EU summit on Monday as a last critical attempt to prevent Greece going bankrupt. A representative of the European Central Bank told the meeting it was unsure whether Greek banks would have the funds to be able to open on Monday.
As thousands of pro-EU protestors gathered outside the Athens parliament building, leaders of the eurozone and the International Monetary Fund aimed bitter criticism at the leftwing Greek government, accusing it of lying to its own people, misrepresenting and misleading other EU leaders, refusing to negotiate seriously, and taking Greece to the brink of catastrophe.
The Luxembourg talks broke down within an hour of discussions about the Greek crisis starting, indicating the bad blood between both sides. Christine Lagarde, the head of the IMF, said there was an urgent need for dialogue "with adults in the room". She added: "We can only arrive at a resolution if there is a dialogue. Right now we're short of a dialogue."
Lagarde has taken a tough line on debt talks with Athens over the past four months, since the radical leftist Syriza government took control and insisted creditors drop proposals for further austerity as the price of releasing the last tranche of bailout funds. At the talks in Luxembourg she reportedly introduced herself to Greek finance minister Yanis Varoufakis as "the criminal in chief", in reference to Tsipras's claim earlier this week that the IMF bore "criminal responsibility" for the situation in Greece.
Pierre Moscovici, the European commissioner for economic affairs, who has been more sympathetic to the Greek case, said: "There's not much time to avoid the worst." He appealed to the Tsipras government to return to the negotiating table, making it plain that Athens has been treating its creditors and EU partners with contempt. He said Athens had made no credible counter-proposals on the bailout terms and said that Varoufakis tabled no new proposals on Thursday, despite the session of Eurogroup finance ministers being billed as the last chance to secure a deal sending Greece a financial lifeline and keeping it in the euro. He called on the Greek government "to avoid a fate that would be catastrophic".
The current bailout for Greece expires on 30 June when Athens is also due to repay the IMF around €1.6bn. Lagarde said if the payment is not made on time, Greece will be declared to be in default and would disqualify itself from receiving any further IMF funds.
Jeroen Dijsselbloem, the Dutch finance minister and president of the eurogroup, said: "No agreement is yet in sight."
Varoufakis reiterated demands for debt relief as part of a deal. The creditors concede that this could be agreed in the future, but that first Greece has to meet the terms of the present rescue package which expires in 11 days. "We are dangerously close to a state of mind that accepts an accident," said Varoufakis.
As the talks quickly broke down in Luxembourg, in Brussels, Donald Tusk, the president of the European council, promptly convened an emergency leaders' summit on Monday evening, putting the onus on both Merkel and Tsipras as the two key leaders to bend towards concessions to clinch a deal.
A senior EU official taking part in the meeting told the Guardian that Monday's summit was convened as soon as EU leaders learned of the collapse of the Luxembourg talks. The spectre of a Greek banking collapse under the weight of withdrawals prompted the meet, he said.
The standoff is over what actions Greece has to take to access the remaining €7.2bn in bailout funds.
Dijsselbloem made plain that even if agreement is reached in the end, the rescue package would need to be extended beyond 30 June, as there simply was not enough time left to negotiate the fine print and get through the parliamentary procedures needed in several eurozone countries.
At issue is just a €2bn financing gap between what the Greeks are prepared to offer and what the creditors are demanding, but the problem goes deeper into questions of power and rules. Dijsselbloem said any deal that might be reached would need to maintain the credibility of the eurozone as a rules-based community.
As the meeting degenerated into rancour, Greek banks stood on the brink of collapse after a flood of cash withdrawals on Thursday, raising the prospect of capital controls and temporary bank closures. The five major commercial banks saw around €2bn of deposits withdrawn by customers anxious that Greece was nearing the end of its credit line with lenders and about to go bust.
Dijsselbloem demanded that the Greek government act quickly to restore trust and stem the haemorrhaging of deposits. "It's a sign of great concern for the future," he said. "It can be dealt with, but it requires quick action."
Top officials from the European Central Bank told the meeting that Greece might need to impose capital controls within days. They said the banks would be open on Friday. "On Monday, I don't know," Benoit Coeure from the ECB board was said to have told the ministers.
The precarious situation, which has previously forced the ECB to regularly increase its credit line to Greek banks, formed the backdrop to intense negotiations between Athens and the troika of creditors – the European commission, the International Monetary Fund and the ECB.
Lagarde said there would be "no grace period or possibility of delay" to loan payments that are due on 30 June. The hardening of the IMF’s stance follows an admission by the debt-stricken Greek government on Wednesday that it would be unable to pay without a deal with Brussels and the IMF to provide extra funds.
Lagarde said the Syriza administration would need to make further reforms to its pension system to get a deal, something prime minister Tsipras has refused to countenance.
Writing in German newspaper Der Tagesspiegel, Tsipras said pensioners had become the main breadwinners in many families, meaning cuts in pension payments would increase poverty.
"Traditionally, this solidarity has meant that young people, through their contributions, fund the pensions of their parents," he said.
"But during the Greek crisis, we've witnessed this solidarity being reversed as the parents' pensions fund the survival of their children."
But the IMF and Brussels want further cuts to bring down the cost of pensions, which account for 16% of GDP, with further restrictions on early retirement and lower supplementary pension payments.
The Greek government has maintained, throughout five months of talks, that it remains ready to join talks to secure an agreement, but could not accept the current proposals to cut pensions or the insistence it achieve a 1% budget surplus in the middle of a recession.
Chief negotiator, Euclid Tsakalotos, warned on the BBC's Today programme on Radio 4 that "if Greece goes out, the euro might break down." He said: “Once one country has left, you change a monetary union into a fixed exchange rate system, where it's a cost-benefit analysis whether another country leaves.
"My greatest fear is that the breakup of the euro will return [us] to the competitive devaluations, and the nationalisms, and the kind of politics we had in the 1930s. If we don't [have a deal], we have to go to the Greek people, because we have no mandate to leave the euro, and that would be a very bad eventuality."
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Further reading:
Greek Parliament Calls It: Now Act On It
Yanis Varoufakis says there was not a single comment on his proposals in the Eurogroup meeting. Varoufakis also stated: "This should be a level of concern for all Europeans, not just Greeks."
How did your collegues in the eurogroup react
to your proposals ?
The euro banksters now seem to be pointing the gun at their own heads because Greece just told them to take a hike re: default.
"So go ahead, pull the trigger."
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