Greeks step back from precipice

June 22, 2015 09:34 AM

Euro zone finance ministers welcomed new Greek proposals for a cash-for-reform deal on Monday but said they required detailed study and it would take several days to determine whether they can lead to an agreement to avert a default.

Jeroen Dijsselbloem, chairman of the 19-nation Eurogroup, told a news conference: "We will work very hard in the next few days, the institutions with the Greek government, to get that deal this week."

The ministers agreed to reconvene later this week, after Greece has thrashed out details with its international creditors - the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

Dijsselbloem described the Greek document as comprehensive and "a basis to really restart the talks" but said it remained to be seen whether the numbers added up to make Athens' public finances sustainable.

Heads of state and government of the euro zone were to hold an emergency summit on the crisis on Monday evening but officials made clear in advance that they would not negotiate on details of the program, only agree on a political timetable for a deal. They dismissed a rumor in German media that the summit had been canceled.

Asked for his assessment of the Greek proposals, transmitted to Brussels early on Monday, EU Economics Commissioner Pierre Moscovici said: "It's a solid, and at last global, basis (for negotiations), but there is more work to be done."

Athens has to make a 1.6 billion euro repayment to the IMF by June 30 or be declared in default, potentially triggering capital controls to stem a bank run and pushing Greece closer to the exit from the euro zone.

With anxious savers already withdrawing cash en masse, fearing emergency controls, the European Central Bank increased its emergency liquidity assistance to Greek lenders for the third time in a week.

But after months of acrimony between Greece and its creditors, the positive mood music in Brussels injected new hope that an agreement might be near.


European shares surged and the Greek stock market jumped 8% while the borrowing costs of Italy, Spain and Portugal - the countries most likely to be hit if Greece headed for the euro zone exit - fell sharply.

In the proposal sent early on Monday, Greece moved to acquiesce to lenders' demands for tax increases and pension reform by offering to raise the retirement age gradually to 67 and curb early retirement. It also offered to reform the value-added-tax system to set the main rate at 23%.

Chancellor Angela Merkel of Germany, the biggest European contributor to Greece's bailout programs, held open the possibility of a deal. "There are still a lot of days in the week in which decisions can be taken," she told reporters in Magdeburg.

But German Finance Minister Wolfgang Schaeuble, who has taken a consistently hard line with Athens, was pessimistic.

"There is nothing new beyond many trying to create expectations which are not supported by substance," he said. "Without substantial proposals which can be examined seriously, we can't seriously prepare a euro summit."

In a sign of the angry mood among Merkel's conservatives toward Greece, former German interior minister Hans-Peter Friedrich said there was no point in "dragging out a bankruptcy for political reasons".

"We do the greatest harm to Europe if we lie to ourselves," he said, adding that he was skeptical that the leftist Greek government would provide adequate assurances to win German parliamentary support for further aid.

Greek Prime Minister Alexis Tsipras was holding a series of talks with figures including ECB President Mario Draghi and IMF head Christine Lagarde before the summit, due to start at 7 p.m.

European Commission President Jean-Claude Juncker, a veteran EU dealmaker, gave Tsipras a warm welcome, taking him by the shoulders and patting him on the cheek. This contrasted to earlier this month, when a frustrated Juncker rebuked Tsipras for failing to observe the "minimum rules" of friendship.


French President Francois Hollande said in Paris before leaving for the summit that, even if leaders did not achieve an immediate deal, "we'll need to set the foundation tonight so that a deal can be reached in coming days".

Underlining the urgency, Greece's central bank chief last week warned lenders to brace for a "difficult day" on Tuesday if the summit ended without a breakthrough, banking sources told Reuters.

There were no immediate long queues or signs of panic outside Greek banks in the capital on Monday.

"I believe there will be a deal today. This is a normal visit to the bank," said one Greek saver outside a bank branch.

An exit from the euro would create economic dislocation in Greece and severe consequences for its banks' liquidity and solvency, which could lead to the banking system being nationalized, credit ratings agency Moody’s warned in a report on Monday.

Comments by Greek Deputy Labor Minister Dimitris Stratoulis on a morning news show underscored how little room Tsipras has to reach an agreement that will win over both the creditors and his own leftist Syriza party.

"We are not afraid of blackmail, and our priority is the public interest," Stratoulis, a Syriza hardliner, told Antenna television. "Let's see if there will be a deal tonight."

Syriza stormed to power in January promising to roll back years of austerity it says has worsened Greece's plight.

Thousands gathered in central Athens on Sunday to protest against a new round of cuts, while a demonstration in favor of staying in the euro was expected later on Monday.


(Reporting by Karolina Tagaris, Angeliki Koutantou, George Georgiopoulos, Michelle Martin, Alastair Macdonald, Astrid Wendlandt, Jan Strupczewski, Lefteris Karagiannopoulos and; Andrius Sytas; writing by Paul Taylor and Matthias Williams; editing by David Stamp and Kevin Liffey)

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Renee Maltezou and Jan Strupczewski, Reuters