The German chancellor, Angela Merkel, has said an emergency eurozone meeting on Saturday will be “decisive” in resolving the Greek debt crisis, as Athens faces acritical 24 hours in its attempt to avoid a debt default.
European officials in Brussels were resuming efforts on Friday to resolve the standoff between Greece and its creditors, but are running out of time to prevent the indebted country missing a €1.6bn (£1.1bn) payment to the International Monetary Fund on Tuesday and the severing of life support to its banking system.
After talks between Athens and its creditors ground to a halt on Thursday, a further meeting of eurozone finance ministers will be held on Saturday in a bid to achieve a breakthrough. Saturday is realistically the last chance for the Greek prime minister, Alexis Tsipras, to strike an agreement, because the country’s lenders are demanding the parliament in Athens ratifies any deal before markets open on Monday.
Speaking after a meeting of European leaders broke up early on Friday morning, Merkel said the Saturday Eurogroup meeting “will be decisive because time is of the essence”.
“Every member of the European council [EU leaders] strongly supported that every effort has to be made to bring about a solution.”
Greece’s three creditors – the IMF, the European commission and the European Central Bank – are studying the latest compromise proposal from Greece, after high-level talks collapsed on Thursday when it became clear Athens was not going to give in to creditor demands for further austerity. The lenders are demanding spending cuts in exchange for releasing the final €7.2bn (£5.1bn) tranche of funds due under Greece’s current bailout programme. Key differences remain between both sides over pensions, VAT rates and taxation.
Merkel has made it clear she wants a deal before Monday when the financial markets and the banks reopen after the weekend. Tuesday is a critical day for Greece because, alongside the IMF payment, its bailout programme also expires on 30 June. Without the shelter of a bailout deal, the ECB is expected to cut off emergency support to Greek banks, who are relying on the central bank to cover deposit withdrawals that reached more than €4bn last week. Without that support, Tsipras could be forced to impose capital controls, as a dearth of euros in the economy forces Greece to consider launching a parallel currency.
Uncertainty about the deal pushed down stock markets in Asia on Friday and is also expected to weigh on European markets. “Perhaps a wider concern for markets is that each day the institutions lose more credibility when these arbitrary ‘final’ deadlines gets missed,” said Jasper Lawler of CMC Markets.
Days of back-to-back meetings involving Europe’s most powerful leaders and finance ministers have failed to break the deadlock, leaving Greece’s future in the eurozone hanging by the finest of threads.
The eurozone now has until Saturday night to strike the deal that has eluded them for more than four months, since Greece won an extension on its €240bn (£171bn) bailout in February, giving it breathing space to negotiate terms with its creditors.
On Thursday, the IMF reiterated its warnings that no repayment extension was on offer. Being in arrears to the IMF could force Greek out of the eurozone, the “Graccident” that EU leaders insist they want to avoid. Any deal agreed in Brussels has to be backed by the Greek parliament.
Greece’s lenders are demanding deeper spending cuts from Athens, as well as faster, more sweeping reforms to its pension system. The Greek government had hoped to appease its creditors with a plan based mostly on €8bn of tax increases – measures that brought hundreds of protesting pensioners on to the streets of Athens.
Key differences remain, with Greece offering to raise the retirement age to 67 by 2025 as part of its pension reforms, but creditors demanding an earlier date of 2022. On VAT, the lenders want hikes equivalent to 1% of GDP this year, while Greece wants 0.74%. Despite pushing for a steeper VAT bill, the creditors are also seeking to curb a proposed increase in corporation tax.
The Greek team presented the creditors with a fresh proposal on Thursday, but ministers decided it needed further study. An EU official said Greece’s three creditorswould study the latest Greek proposal to see if there was anything worth incorporating into a fresh compromise text. The official added that lenders had already conceded much to the Greeks.
Greece’s finance minister, Yanis Varoufakis, said on Thursday both sides would keep on seeking an agreement as they try to square the differences between a Greek plan submitted on Monday and the lenders’ counter-proposal. He said: “We shall continue our deliberations, the institutions are going to look again at the two documents – our documents and their own – there will be discussions with the Greek government, and we’ll continue until we find a solution.”
However, it is far from clear that Tsipras can carry the rest of the ruling hard-leftSyriza coalition with him.
One Syriza MP, Costas Lapavitsas, said leaving the eurozone could offer fresh hope, and was preferable to “blackmail” by Greece’s creditors. Writing in the Guardian, he said Greece had come face to face with the “ruthless reality” of the eurozone.
“The “institutions” are once again attempting to impose the policies that have failed abysmally since 2010, causing huge contraction of GDP, vast unemployment and mass impoverishment. [Accepting the current proposal from the institutions] would be a national disaster accompanied by the complete humiliation of the Syriza government.”