The Greek prime minister Alexis Tsipras has been given hours to come up with a plan to keep his country in the euro.
The German chancellor Angela Merkel said “time is running out” as she and French president Francois Hollande, leaders of the biggest countries in the euro bloc, responded to Sunday’s referendum.
The European Central Bank piled on the pressure by making it tougher for Greek banks to access emergency loans as the country’s citizens endure a second week of capital controls. Finance ministers and leaders from the 19-member region gather to discuss the result on Tuesday.
After promising Greek voters that a No outcome against austerity would strengthen his hand in negotiations, the onus is on Mr Tsipras to prove he can get a deal with creditors insistent on tax increases and spending cuts as the price for a new bailout of Europe’s most indebted nation.
“The last offer that we made was a very generous one,” Mrs Merkel said on Monday at the Elysee Palace in Paris. “On the other hand, Europe can only stand together, if each nation takes on its own responsibility.”
Heading into the Brussels talks – 1pm for the finance chiefs, and 6pm for the summit – Greece made a pre-emptive concession to its trio of creditors with the resignation of the outspoken Greek finance minister Yanis Varoufakis who clashed with his counterparts from other countries, especially Germany’s Wolfgang Schaeuble.
The United States president Barack Obama spoke by phone with Mr Hollande and the two agreed on the need for a way forward that would allow Greece to resume reforms and return to growth within the euro area, according to a White House statement. Treasury secretary Jack Lew spoke with Mr Tsipras and his new finance chief, Euclid Tsakalotos, and urged a constructive outcome.
With bank closures extended through Wednesday to stem deposit withdrawals, Greek lenders are being kept on the equivalent of a drip feed by the ECB.
In a phone call with ECB president Mario Draghi, Mr Tsipras raised the issue of lifting capital controls, providing more emergency liquidity assistance to Greek lenders, according to a Greek government official.
Earlier, the ECB kept its lifeline at its prior level, rather than raise it as Mr Tsipras wanted. Yet it increased the haircuts on collateral pledged against emergency liquidity, raising the discount applied to reflect the dire situation.
Reaction to the latest stage of the Greek crisis has been muted in financial markets, suggesting its effects can be contained. The euro slipped 0.2 per cent to $1.1034 in Asia, while the MSCI Asia Pacific Index rose 0.1 per cent from its lowest level since March.
Euro-region finance officials on a Monday conference call made little progress towards bridging the gap between Greece and its creditors, two people involved in the talks said. The call took place in preparation for Tuesday’s round of talks.
Mr Tsipras can claim a strong domestic mandate to negotiate after 61 per cent voted against the latest creditor proposals. The endorsement came even after banks had been closed for a week, causing widespread queues at ATM machines as Greeks waited to withdraw a daily maximum of €60 (Dh242) each.
“No question about it in the short term, Mr Tsipras won,” said Hans Humes, founder of Greylock Capital Management. “There is latitude for the Greeks to go back to the Europeans and present them with something that’s a little bit more palatable.”
Unless it finds a solution to its cash crunch, Greece could drift toward a euro exit. Without funds to pay salaries and goods, the government could eventually be forced to issue IOUs or some other medium of exchange, which might gradually evolve into a parallel currency.
“The negotiations can keep going until July 20,” said Mark McFarland, Hong Kong-based chief economist at Coutts & Co, referring to the deadline for Greece to pay €3.5 billion back to the ECB. “Ultimately you have a binary outcome. Either Greece leaves the euro zone or some sort of deal is done with the euro zone and the IMF.”
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