Greece’s international creditors are aiming to strike a deal to stop Athens defaulting on its debt and possibly tumbling out of the euro by extending its bailout by six months and supplying up to €18bn in rescue funds.
The negotiators representing Greece’s lenders are also proposing to pledge debt relief for the austerity-battered country – but officials stressed that a breakthrough hinged on a positive response from the Greek Prime Minister Alexis Tsipras.
Negotiations were continuing on Sunday night, hours ahead of crucial gatherings of eurozone finance ministers and leaders in Brussels, which Angela Merkel, the German chancellor, Francois Hollande, the French president, and Tsipras are expected to attend. All three leaders spoke over the weekend, with contributions from European commission head Jean-Claude Juncker.
The crisis meeting was convened in an attempt to ease Greece’s debt crisis before a critical €1.6bn payment to the International Monetary Fund (IMF) falls due next Tuesday.
Greece’s creditors were still waiting for Tsipras and his Syriza party to formally submit revised fiscal targets, pensions cuts and tax increases in an attempt to secure the six-month lifeline, concessions that the country’s leader has resisted since he came to power five months ago.
At a cabinet meeting in Athens earlier on Sunday, Tsipras is believed to have discussed offering Greece’s creditors – the European Central Bank (ECB), the IMF and the European commission – unspecified concessions on tax and pensions reform.
A statement from Tsipras’s office said: “The prime minister presented [Merkel, Hollande and Juncker] with Greece’s proposal for a mutually beneficial agreement that will give a definitive solution and not a postponement of addressing the problem.”
However, it was not clear that Tsipras would be able to go far enough to make a final agreement possible on Monday, when the country’s banks and the international money markets reopen after another weekend of pressure on the Greek financial system.
Reuters reported on Sunday that €1bn worth of withdrawal orders had been lodged with Greek banks over the weekend – on top of the €4bn that left the country’s banking system last week. The news agency also said that the European Central Bank (ECB) was set to discuss extending financial help to the banks this morning, amid fears that Greek banks would be unable to open on Tuesday.
A hectic round of telephone diplomacy took place over the weekend between leaders in Athens, Berlin, Paris and Brussels while technocrats on both sides sought to hammer out the small print of the fiscal arithmetic forming the basis for a last-minute agreement days before Greece’s existing bailout expires.
With time running out, the only way an IMF default could now be avoided is for the ECB to raise the ceiling on the short-term debt Athens is allowed to sell, the officials said. This would need to happen by Monday next week. Brussels sources also signalled moves to address Tsipras’s key demand – that the creditors need to offer debt relief to Greece.
Some form of debt restructuring would be promised to Athens in the future, but it would come with strings attached and not as part of the current bailout package, they said.
Yanis Varoufakis, the outspoken Greek finance minister, said on Sunday that Greece’s fate hinged on Merkel, and told her she faced a stark decision. But his spokesman reacted sceptically to suggestions of creditor promises on eventual debt relief, describing the eurozone as “pathological liars”.
Eurozone finance ministers will meet at lunchtime on Monday in Brussels, four days after a previous session collapsed in mutual recrimination in Luxembourg. The summit is a success for Tsipras, who has consistently insisted that the debt crisis can be resolved only by Europe’s political leaders. The Greek cabinet met on Sunday to discuss what a source close to the government said was an outline proposal drawn up by the prime minister’s closest political and economic advisers. It included changes to the tax and pension systems.
Pensions and benefit cuts are perhaps the most delicate of all the issues that Tsipras’s government has so far defined as red lines not to be crossed.
The source said Athens was only ready to concede a reduction in higher pensions that would affect no more than 80,000 people. The Greek concessions were also said to include new taxes, the elimination of early retirement allowances and a levy on companies. According to the state television channel ERT, the new Greek proposal also includes the Tsipras government in effect agreeing to greater austerity than previously sanctioned. The country would set a new target of running a surplus amounting to 1% of the country’s gross domestic product.
The six-month rescue extension being mooted would see Greece qualify for €7.2bn in bailout funds still to be disbursed as well as €10.9bn already lent to the country but earmarked for recapitalisation of its weakened banks. The latter sum could be quickly transferred to the government to facilitate debt repayments.