Greece edges closer to debt default
BRUSSELS - Greece is one day closer to a potential government debt default after talks with the cash-strapped country's creditors ended without a bailout agreement.
A key meeting of eurozone finance ministers in Brussels on Thursday broke up without a deal on Greece's rescue package, intensifying doubts about whether Athens can pay the International Monetary Fund a debt worth 1.6 billion euros ($1.8 billion) on June 30.
An agreement on a drastic Greek tax and austerity reform package is necessary for creditors to unfreeze 7.2 billion euros (8.1 billion dollars) in bailout money that would get Prime Minister Alexis Tsipras off the hook.
"European history is full of disagreements, negotiations and at the end, compromises," Tsipras said. "So, after the comprehensive Greek proposals, I am confident that we will reach a compromise."
But some experts warned that the debts talks are hanging by a thread. "Following the optimism earlier in the week that an agreement was very close, it has become clear that there are still major differences between the two sides," said Jonathan Loynes, chief European economist with Capital Economics, in a note.
Lower-level negotiations will continue and a new meeting of eurozone finance ministers is tentatively scheduled for Saturday.
The breakup of the eurozone meeting was the latest in a series of negotiating roadblocks, and a major setback since there had been hopes to reach a deal in time for European leaders to approve it at a summit later Thursday.
The blockage happened after leaders from the IMF, the European Central Bank and the European Commission raised the stakes by putting forward their joint position on the reforms they would accept to offer Greece a financial lifeline. But Greece, objecting to what it saw as outside interference, was still not on board, and wanted to stick to a previous plan it had offered.
Greek Finance Minister Yanis Varoufakis said several ministers within the 19-nation eurozone found that Athens was being pushed too hard. "Interestingly, several colleagues disagreed and criticized not only our text but also the text of the institutions," he said.
Greece's most influential creditor, Germany, had never been optimistic about a breakthrough Thursday.
The Greek government so far has "not moved, rather moved backward," said German Finance Minister Wolfgang Schaeuble. He said the chances for success now "lies exclusively with those responsible in Greece."
Tsipras is under massive pressure from Greeks themselves as the compromises suggested so far will mean more hardship for citizens already suffering the impact of past austerity measures to bring public spending into line.
According to Greek officials at the talks, creditors are seeking a different mix of austerity measures than those proposed by Athens, making the cuts more immediate.
They include broad pension cuts, higher revenue from sales tax, and a faster elimination of tax exemptions - demands that are likely to fuel dissent within the government if accepted.
Representatives from almost every Greek party were in Brussels, following developments blow by blow, to see whether they would be able to back any new deal in the Greek parliament, where a vote must pass by Monday.
"We are at a critical moment," Greek Labor Minister Panos Skourletis warned on private Antenna television.
He said on of the key issues Greece wanted included in an agreement was making the country's existing debt load more sustainable. Creditors have said in the past they would consider that, by either lowering the interest rates or extending repayment dates on Greece's bailout loans. But they are balking at discussing the issue now, preferring to first get Greece the loans it needs to avoid default next week.
Adding urgency, the IMF said Greece would not get any grace period on its June 30 debt repayment.
A default on its debts could force Greece out of the eurozone, which would be hugely painful for the country. Some experts say it could be manageable for Europe and the world economy, but that remains unclear and any failure would likely shake global markets.
"When Greece, Europe, the eurozone is at stake, we have to know how to finish negotiations," said French President Francois Hollande.
Amid the uncertainty over Greece's future, bank deposit holders have been pulling money out of the banks. That has forced the European Central Bank to increase emergency credit to the Greek banks on a daily basis since last week.
Experts say that if Greece does not reach a deal, it could have to put limits on money withdrawals soon.
Miranda Xafa, senior fellow at the Center for International Governance Innovation and a former IMF official, said that the talks were now "more a matter of signing a deal, even a painful deal" that would cover Greece for three to nine months.
If no deal is struck quickly, she said, Greece could see "capital controls as early as next week."
Despite the uncertainty, investors held their nerve. The Stoxx 50 index of European shares closed unchanged on the day while the Athens Stock Exchange edged up 0.1 percent.