Greece clings to eurozone hope as Alexis Tsipras battles banking collapse
Prime minister pleads with sceptical leaders to provide two-pronged financial assistance with Angela Merkel saying it is ‘matter of days’ until time runs out
Alexis Tsipras, the Greek prime minister, submitted proposals for a third bailout to a summit of eurozone leaders in Brussels, making clear that his country would also need immediate support to stop a banking collapse that would force a return to the drachma.
Greece’s new finance minister, Euclid Tsakalotos, prompted optimism of a breakthrough when he said there was “political will” in Brussels to keep the eurozone intact.
Government sources in Greece said Tsipras has proposed a two-pronged approach. The prime minister asked for three to four months of bridging finance that would keep the banks open and allow Athens to pay their pressing debts to the European Central Bank and the International Monetary Fund. That would be followed by a third bailout package lasting two years, which would include debt relief.
Despite his favoured no vote winning Sunday’s referendum by a large majority, Tsipras is aware that both emergency finance and a longer-term deal under the European Stability Mechanism (ESM) would come with significant strings attached.
In the hope that Washington would lean on Brussels to agree a deal, Tsipras spoke to Barack Obama before the summit. The US president then spoke to Angela Merkel, putting pressure on the German chancellor to keep Greece in the eurozone. The White House is keen to avoid Greece leaving the euro, fearful that it could increase Russia’s influence in the eastern Mediterranean.
Brussels has made it clear that Greece’s fate will be decided quickly. Refusal by eurozone leaders – many of whom have lost patience with Tsipras – would lead to Greece’s departure from the single currency being confirmed at the impending summit of all 28 European Union countries, which has been tentatively planned for Sunday.
Merkel warned that time was running out for Greece as leaders of the 19-strong eurozone made it clear that there was no immediate prospect of the debt relief Tsipras is seeking in exchange for tough new austerity measures.
“It is not a matter of weeks any more, it is a matter of days,” Merkel said at a summit called to discuss the Greek crisis following the decisive rejection of its creditors’ terms demanded in last Sunday’s referendum.
“[With] the Greek government it is every time mañana,” said Lithuania’s president, Dalia Grybauskaitė, one of the Greece’s harshest critics. “It can always be mañana every day.”
Early signs during a day of meetings in Brussels were not good when Tsakalotos arrived up at a gathering of eurozone finance ministers without a written plan to secure funds to safeguard its cash-starved banks.
Financial markets reacted nervously to the lack of progress in resolving the crisis. Share prices fell around the world, and the euro slid against the US dollar. Oil prices dropped and investors sought out safe havens for their money, such as German bonds.
Even if Europe agrees to a new ESM bailout, the money would not be available to Greece until mid-August at the earliest – far too late to stop it from defaulting on a €3.5bn (£2.49bn) debt payment to the ECB due on 20 July.
But sources in Brussels said that there was a fix available, provided leaders believed the departure of the former Greek finance minister Yanis Varoufakis had created some goodwill.
They said that when Greece’s second bailout expired last Tuesday, €3.3bn in ECB profits from its securities markets programme due to Greece also vanished.
Ministers from the Eurogroup could decide to release the profits from 2014, which amount to €1.85bn, and top them up with an additional €1.5bn currently held by eurozone governments in order to solve the ECB problem.
A eurozone source said: “It’s not an easy solution, but probably the only solution.”
The advantage for Greece would be that the money could be released without the delays caused by having to obtain agreement through the parliaments of eurozone members. The potential downside, though, is that the cash would need to be authorised by the Eurogroup unanimously, meaning any single country could veto the plan.
The economist Thomas Piketty, author of the bestselling Capital, said it was up to Merkel to show leadership and remember the benefits Germany had received from debt relief.
In a letter to the Guardian, Piketty and other leading economists wrote: “We urge Chancellor Merkel and the troika to consider a course correction, to avoid further disaster and enable Greece to remain in the eurozone. Right now, the Greek government is being asked to put a gun to its head and pull the trigger. Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the eurozone as a beacon of hope, democracy and prosperity, and could lead to far-reaching economic consequences across the world.
“In the 1950s Europe was founded on the forgiveness of past debts, notably Germany’s, which generated a massive contribution to postwar economic growth and peace. Today we need to restructure and reduce Greek debt, give the economy breathing room to recover, and allow Greece to pay off a reduced burden of debt over a long period of time. Now is the time for a humane rethink of the punitive and failed programme of austerity of recent years and to agree to a major reduction of Greece’s debts in conjunction with much needed reforms in Greece.”
