Greek finance chief: Still room to ease default crisis even with nation on brink

30 Jun 2015 | Author: | No comments yet »

EU makes last-ditch bid to save Greek bailout.

Pensioners waiting outside a closed National Bank branch and hoping to get their pensions argue with a bank employee in Iraklio on the island of Crete A man holds a banner supporting Greece during a protest in front of the European Union office in Barcelona, Spain.

Pedestrians in Athens on Tuesday pass a banner that reads ”NO”, hung up by supporters of the No vote in the upcoming referendum on creditor propoals. (Thanassis Stavrakis/Associated Press) As the hours ticked by before Greece’s bailout officially expires later on Tuesday, Finance Minister Yanis Varoufakis confirmed the country will not make a 1.6 billion euro debt repayment to the IMF which also falls due on the same day.EU authorities made a last-minute offer to salvage a bailout deal that could keep Greece in the euro as the clock ticked down on Tuesday, with Germany warning that time had run out to extend vital credit lines to Athens. The banner reads “Greece yes, Troika no” Greeks have begun emptying supermarket shelves and petrol stations after the government’s decision to close banks ahead of a bailout referendum next Sunday.

If that does not happen, IMF Managing Director Christine Lagarde will immediately report to the global lender’s board at close of business, Washington time, that Greece is “in arrears” — the official euphemism for default. With billions of euros in locked-up bailout funds due to expire at midnight, the European Commission urged Greece to accept the proposed deal, while holding out hopes that some tweaks could still be possible.

The officials, who spoke on condition of anonymity because contacts about the program were still ongoing, said three sources of money would disappear in the event of no agreement to extend the bailout. Panic set in across the country as people queued at ATMs to withdraw a €60 daily limit and stockpiled goods amid rumours pharmaceuticals could run out.

It will be the first time since IMF was founded that an advanced, developed economy will have gone into default on an IMF loan, although Zimbabwe, Sudan, Cuba and others have done so in the past. These include 1.8 billion euros from the EU’s financial stability fund, 10.9 billion euros from a Greek bank rescue fund, and a further 3.4 billion euros in central bank profits. Tsipras has urged Greeks to reject creditors’ tough reform demands in a referendum on Sunday, but has also pleaded for an bailout extension to keep Athens afloat. While borrowing costs rose for countries like Spain and Portugal, they fell for Ireland, in one of the clearest signs yet that investors no longer link our fate to other heavily indebted countries. An EU official, who asked not to be identified because of the sensitivity of the talks, called it “a sort of last-minute offer” before Tuesday’s dual deadlines.

In that case, an assessment would first have to be made on whether Greece is eligible, what kind of terms the new package would function under and the kinds of reforms that Athens would undertake in return. Dubliner Ken Hickey, who is due to open a bar in the city of Thessaloniki next week, said “panic” has set in for many people and suppliers are demanding cash on delivery, which is “impossible” as funds can’t be accessed. After months of wrangling and acrimony, the growing possibility that Athens could be forced out of the single currency brought into sharp focus the chaos that could be unleashed in Greece as well as the danger that would arise for the stability of the euro. “What would happen if Greece came out of the euro? The prime minister’s office says Greece remains at the negotiating table, and that the government has proposed a two-year deal with Europe’s bailout fund. Taoiseach Enda Kenny has rejected a plea from Greece for help in securing a one-month extension of existing EU bailout funding ahead of its referendum on the next financial package.

EU and Greek government sources said Juncker, who spoke to Prime Minister Alexis Tsipras late on Monday, had offered to convene an emergency meeting of euro zone finance ministers on Tuesday to approve an aid payment to prevent Athens defaulting, if Tsipras sent a written acceptance of the terms. Details over the offer with the European Stability Mechanism, which provides financial assistance to assure the joint currency’s financial stability, were sketchy.

Tsipras, elected on an anti-austerity ticket in January, on Monday blamed creditors for “suffocating” the banks and making it impossible for the country to pay up its debt. Mr Kenny told Mr Tsipras to return to bailout talks and offered support towards finding a “mutually beneficial agreement, acceptable to all concerned”. Thousands of people poured onto the streets of Greece’s two biggest cities, Athens and Thessaloniki, on Monday night to support their government’s opposition to the latest proposals, after a clash with creditors forced the closure of banks and the imposition of capital controls. After the referendum, Mr Tsipras says bailout talks can then restart next Monday to reach an agreement “in line with the decision of the Greek people”.

Tsipras sought to calm nerves on Monday by leaving the door open, saying the Jul 5 plebiscite on the creditors’ latest cash-for-reform plans would leave Greece “better armed” in the fight for a debt deal. Juncker told the Greek premier that a deal would involve accepting reform proposals that Greece’s EU-IMF creditors made at the weekend and backing a ‘Yes’ vote in Sunday’s plebiscite.

A Greek government source said that negotiations were taking place between Athens and its creditors, though a European Commission spokesman said time was “running out quickly”. EU leaders including Merkel, France’s Francois Hollande and Italy’s Matteo Renzi have joined Juncker in warning that the referendum would effectively be a vote on Greece’s place in the eurozone. The Greek economy has shrunk by more than 25 per cent since 2009 and unemployment has soared to over 25 per cent, including more than 50 per cent of young job seekers.

UEFA, European soccer’s governing body, says it will look at adapting its regulations to help Greek clubs should the financial crisis in the country turn “really bad.” Speaking after UEFA’s executive committee met in Prague on Tuesday, general secretary Gianni Infantino says clubs in Greece “could find themselves in a very difficult situation due to something they’re not responsible for.” Turkish prime minister says his country is ready to help Greece overcome its economic crisis and is offering to expand cooperation in areas such as tourism, energy and trade. While the Tsipras government blames German-driven austerity for this economic disaster, EU officials note that other euro zone countries such as Ireland, Portugal and Spain that received bailouts for the state or banks have carried out similar reforms and returned to economic growth, even if unemployment remains high. Ahmet Davutoglu said Turkey wants to live “in peace,” and has no interest in seeing Greece “languish.” Turkey and Greece have been long-time foes but the two countries have sought to build bridges over the past few years. Athens lashed back Tuesday, with Labour Minister Panos Skourletis warning that European leaders want to “sink” Greece’s ruling Syriza party to block the rise of other far-left anti-austerity parties like its ally Podemos in Spain. He labelled Juncker’s call for Greeks to vote yes in the referendum as a “provocation”. “Today they interfere in the interior affairs of Greece, tomorrow they will do it in Spain and Italy,” said Skourletis, a heavyweight in Greece’s coalition government.

Meanwhile a group of world-renowned economists including US Nobel Prize winner Joseph Stiglitz and leading French economist Thomas Piketty warned EU leaders against “creating bad history” in their bailout standoff with Greece. Beyond accepting proposals made by international creditors last weekend, Commission spokesman Margaritis Schinas said there would be unspecified discussions on Athens’s massive debt load, which stood at 317 billion euros ($355 billion) at the end of 2014, or 177 percent of the country’s annual GDP.

In a letter published Tuesday in Britain’s Financial Times newspaper they called on creditors to give the country “a fresh start, bearing in mind, first, that the contractionary austerity policy demanded of Greece has been discredited by the IMF’s own research department …” while requiring the government to undertake needed reforms. Juncker’s final offer incorporated a proposal from Greece to set value-added tax rates on hotels at 13 per cent, rather than the 23 per cent in the lenders’ original plan. Withdrawal limits of 60 euros a day have been fixed for cash machines and there have been long queues at petrol stations and in supermarkets as worried shoppers have stocked up on essentials like pasta and rice.

In Greece, many people have been caught up in lengthy queues at ATMs after banks were shut down for one week, to withdraw the maximum daily allowance of €60 (US$66). There were no immediate signs of serious shortages but if the banks remain closed, cash flow problems which have already been reported by some firms, could worsen. “So far there are no problems with suppliers, but if the banks are still closed next week there will be a bit of a problem if they demand purely cash payments,” said Charisis Golas, owner of a small meat and dairy shop in Athens. A Greek official said Tsipras has spoken with European Commission President Jean-Claude Juncker, European Central Bank chief Mario Draghi and European Parliament president Martin Schulz. Spanish Prime Minister Mariano Rajoy says the most damaging aspect of a Greek exit from the euro would be the cloud of doubt it would cast over the irreversibility of the currency.

As the tussle over Greece’s future intensified, sympathetic people donated over 30,000 euros to an online crowdfunding project set up by a British shoe-shop employee to help meet the IMF repayment In more gloomy news for Athens, Standard & Poor’s ratings agency downgraded Greece’s credit assessment deeper into junk territory, saying the referendum brought it closer to default. On Monday, stocks slid in the wake of Greece’s decision to call a referendum for July 5 on creditors’ bailout proposals and to impose controls on capital.

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