Greece’s prime minister, Alexis Tsipras, is to travel to Brussels on Wednesday for critical talks with the country’s creditors as the outlines of the latest proposed deal to avoid bankruptcy threatened to unravel, worsening the intractable crisis.
In advance of the third meeting of eurozone finance ministers in less than a week, Tsipras was summoned to the office of Jean-Claude Juncker, the president of the European commission, to try to thrash out remaining differences.
Christine Lagarde, the head of the International Monetary Fund, Mario Draghi, the president of the European Central Bank, and Jeroen Dijsselbloem, the Dutch finance minister who runs the Eurogroup committee of finance ministers, are to confront Tsipras over his tax raises and spending cuts tabled on Monday in the hope of securing more bailout funds and avoiding default next week.
Wednesday’s Eurogroup meeting was aimed at preparing an agreement that would be rubber-stamped by an EU summit on Thursday, averting the eurozone’s first default next Tuesday and keeping the currency bloc intact.
But the mild euphoria that characterised frantic diplomacy and another eurozone summit in Brussels on Monday dissolved swiftly on Tuesday as it became clear that Lagarde found the proposed temporary resolution inadequate and that German chancellor Angela Merkel was also having second thoughts.
Juncker and the commission want to strike a deal, but are essentially mediators with no money at stake in the five-month stand-off which appeared to have reached a breakthrough on Monday.
Lagarde, who kept a low profile at the summit, was said to have strong reservations about the proposed agreement on ideological terms opposed to the hard-left Tsipras government, but also because she does not think the putative agreement will put Greece on the road to recovery.
Sources familiar with Merkel’s thinking said the German leader faced a potential party revolt over extending a further lifeline to Greece without confidence it would succeed.
There is little faith in Germany and among the other creditors in Tsipras and his finance minister, Yanis Varoufakis.
Greece’s eurozone bailout expires next Tuesday when it is also due to repay €1.6bn to the IMF. But there were growing signs on Tuesday that the creditors would not be rushed into a deal they view as inadequate.
Senior eurozone sources said the IMF payment on Tuesday could be easily fixed and that Tsipras might have to call a referendum in Greece on whether to stay in the euro.
The sudden switch from hope to gloom is likely to affect the financial markets and reverse the mini-boom euphoria of the past two days while accelerating bank run tendencies and raising the pressure for the imposition of capital controls.
Greek insiders described the Tsipras summons to Brussels as “a very critical meeting”. “It is not a good sign,” said veteran political commentator Pavlos Tzimas.
As doubts deepened among the creditors, the Greek government came under intense domestic political pressure last night over its concessions. Tsipras faced criticism from within his coalition government over compromise proposals that would raise €8bn by increasing pension contributions, phasing out early retirement, hiking corporation tax and raising some rates of VAT.
“Many MPs, be they on the left or not, are very sceptical about accepting such a programme,” said Costas Lapavitsas, an economics professor at the University of London who is now an MP for Tsipras’s leftwing Syriza party. “How will they explain it to their voters? How will they return to their electoral constituencies and explain this agreement to them?”
The government’s junior coalition partner, the small, rightwing Independent Greeks party, added to the complications for Tsipras by warning it would only support an agreement that included some form of debt write-off. Greece’s creditors are not expected to make such a commitment this week. Panos Kammenos, Anel’s leader, added that his party would oppose a VAT increase for Greek islands “even if the government falls”.
By Tuesday night it was unclear whether the Greek leader would be able to contain the dissent or even pass an agreement through parliament, regardless of whether a deal is reached in Brussels.
Any deal would have to be endorsed by a working majority in parliament, with a close Tsipras ally also suggesting that fresh elections or a referendum may be needed if an agreement is not voted through.
Alekos Flambouraris, a senior government minister, said: “For the government to forge ahead in difficult conditions after the agreement and to restart the economy and kick-start the country’s productive reconstruction, it has to have a unanimous parliamentary group which will put the programme into effect.”
Earlier on Tuesday, the European Central Bank agreed to inject nearly €1bn into the Greek banking system, the third consecutive working day that Greece has received emergency help from the ECB’s emergency liquidity assistance programme in order to stave off bankruptcy as depositors take billions of euros out of accounts.
The Irish finance minister, Michael Noonan, whose country has successfully completed its bailout programme and returned to growth, warned that emergency funding for Greece’s banks could be cut off unless a deal is reached soon.
The European commission is also dangling the prospect of €35bn in financial aid for Greece if a deal is made. “I want ordinary Greeks to know we are offering €35bn to help the economy,” said Juncker.
Earlier, optimism among investors that Greece would avoid a chaotic default boosted stock markets. Greece’s main index ended the day up more than 6%, while the French and German exchanges gained more than 1.2% and 0.7% respectively. In London, the FTSE 100 was flat, while Japan’s Nikkei index hit a 15-year high.