Eurozone leaders told near-bankrupt Greece at an emergency summit on Sunday that it must enact key reforms this week to restore trust before they will open talks on any new financial rescue to keep it in the European currency area.
Leftist Prime Minister Alexis Tsipras will be required to push legislation through parliament to convince his 18 partners in the eurozone to release immediate funds to avert a state bankruptcy and start negotiations on a third bailout program.
Six sweeping measures including tax and pension reforms will have to be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, a draft decision sent by Eurogroup finance ministers to the leaders showed.
The document also included a German proposal to make Greece take a “time-out” from the eurozone if it failed to meet the conditions for a loan. But not all ministers endorsed the idea, which was reserved in brackets in the text seen by Reuters.
A senior EU source said such a temporary exit from the euro was illegal and would not survive in the summit statement.
Tsipras said on arrival in Brussels he wanted “another honest compromise” to keep Europe united.
“We can reach an agreement tonight if all parties want it,” he said.
But German Chancellor Angela Merkel, whose country is the biggest contributor to eurozone bailouts, said the conditions were not yet right to start negotiations, sounding cautious in deference to mounting opposition at home to more aid for Greece.
“The most important currency has been lost and that is trust,” she told reporters. “That means that we will have tough discussions and there will be no agreement at any price.”
If Greece meets the conditions, the German parliament would meet on Thursday to mandate Merkel and Finance Minister Wolfgang Schaeuble to open the talks on a new loan. Then Eurogroup finance ministers would meet again on Friday or at the weekend to formally launch the negotiations.
A Greek government official, in a first reaction to the draft, said: “How can they demand all these measures at the last minute without securing a lifeline to see us through till next week?”
A European official said a Eurogroup meeting on Monday could discuss ways to provide emergency finance to keep Athens afloat.
A finance ministers’ meeting was suspended at midnight after angry exchanges during nine hours of acrimonious debate without a firm recommendation on Greece’s application for a three-year loan on the basis of reform proposals submitted by Tsipras.
Eurogroup chairman Jeroen Dijsselbloem said that while ministers had made good progress, a couple of big issues were left for the leaders to resolve.
“The Eurogroup … came to the conclusion that there is not yet the basis to start the negotiations on a new program,” the document sent to national leaders said.
“Only subsequent to legal implementation of the above mentioned measures can negotiations on the memorandum of understanding commence, subject to national procedures having been completed,” it said, in a reference to authorization by national parliaments in countries such as Germany.
The draft said Greece needed 7 billion euros by July 20, when it must make a crucial bond redemption to theEuropean Central Bank, and a total of 12 billion euros by mid-August when another ECB payment falls due.
It did not say how those needs would be met, and EU officials said finance ministers had been unable to agree on emergency finance.
TEMPORARY GREXIT?
Several hardline countries voiced support for the German proposal that Greece take a five-year “time-out” from the euro unless it accepted and implemented swiftly much tougher conditions, notably by locking state assets to be privatized in an independent trust to pay down debt.
But French President Francois Hollande, Greece’s strongest ally in the eurozone, dismissed the notion, saying it would start a dangerous unraveling of EU integration.
“There is no such thing as temporary Grexit, there is only a Grexit or no Grexit. There is Greece in the eurozone or Greece not in the eurozone. But in that case it’s Europe that retreats and no longer progresses and I don’t want that,” he said.
European Council President Donald Tusk canceled a planned summit of all 28 EU leaders that would have been needed in case of a Greek exit from the single currency, and said eurozone leaders would keep talking “until we conclude talks on Greece”.
The finance ministers agreed in principle to seek ways to make Greece’s debt burden manageable by extending loan maturities and other steps stopping short of a “haircut” or writedown, provided Athens first implements reforms.
They also insisted that the International Monetary Fund must remain fully involved in any third bailout for Athens.
At one stage in the debate on Greece’s debt sustainability, Germany’s hardline Schaeuble snapped at ECB President Mario Draghi: “I’m not stupid,” a person familiar with the exchange said. Schaeuble also clashed with the head of the eurozone bailout fund, Klaus Regling, on whether the EU treaty conditions for an emergency loan were fulfilled, another source said.
The rules say there must be “a risk to the financial stability of the euro area as a whole or of its Member States”.
GREEKS SEE HUMILIATION
Greece’s new finance minister, Euclid Tsakalotos, was silent in public but the reaction among some lawmakers in Tsipras’ radical leftist Syriza party, still smarting from having to swallow austerity measures they had opposed, was furious.
“What is at play here is an attempt to humiliate Greece and Greeks, or to overthrow the Tsipras government,” Dimitrios Papadimoulis, a Syriza member of the European Parliament, told Mega TV.
With banks shuttered for two weeks, cash withdrawals rationed and the economy on the edge of an abyss, some Greeks vented their anger on Merkel and Schaeuble.
“The only thing that I care about is not being humiliated by Schaeuble and the rest of theme” said Panagiotis Trikokglou, a 44-year-old private sector worker in Athens.
Greece has already had two bailouts worth 240 billion euros from eurozone countries and the International Monetary Fund, but its economy has shrunk by a quarter since the crisis began, unemployment has soared above 25 percent and one in two young people is out of work.
Athens defaulted on an IMF loan repayment last month and faces state bankruptcy if it cannot make the bond redemption on July 20, which would likely force the ECB to cut emergency funding for Greek banks.
Economists said the idea of a temporary exit would mean in practice ejecting Athens from the European monetary union.
Paul De Grauwe, a Belgian economist at the London School of Economics, compared it to a couple having a trial separation.
“Temporary Grexit is like temporary divorce. Most if not all end up being permanent,” he said in a Twitter message.
The United States has added its voice to calls for a deal this weekend, concerned at the geopolitical consequences if Greece were to be cut loose and become a failed state in the fragile southern Balkans, adjoining the Middle East.
“No one wants to see a North Korea in southeastern Europe,” a European Commission official said.
