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07Jul15

Eurozone tells Greece not to expect debt relief in near future

The Greek government has been told by its eurozone partners not to expect debt relief any time soon, amid fading hopes of decisive action to stop the country tumbling out of the currency union.

Arriving at an emergency summit of eurozone leaders, Angela Merkel said there was no clear basis to negotiate with Athens after Greek voters rejected an EU bailout plan in a referendum on Sunday. The German chancellor warned that time was running out. "It is not a matter of weeks anymore, it is a matter of days."

Eurozone finance ministers meeting ahead of the summit made it clear they were waiting on Athens to make the first move and were in no hurry to discuss debt relief.

Diplomatic niceties were abandoned as it emerged Greece's new finance minister Euclid Tsakalotos had not come armed with detailed proposals.

"[With] the Greek government it is every time mañana," said Lithuania's president Dalia Grybauskaite, one of the Greek government's most tough-talking critics. "It can always be mañana every day."

Greek banks are almost out of cash and some Eurozone figures are already saying that Grexit is the only option for the debt-ridden country.

The head of Latvia's central bank told domestic radio that the "brave" Greek nation had "voted itself out of the eurozone".

The president of the European commission, Jean-Claude Juncker, said he was not in favour of a Greek exit from the eurozone, but dampened hopes of a breakthrough from the summit. "What we are going to do today is to talk to each other and restore order," he said.

Tsakalotos, the Oxford-educated economics professor, who was sworn in as Greek finance minister on Monday night, arrived at Tuesday's meeting without talking to reporters.

Neither did he bring any detailed proposals - an omission that caused incredulity among other eurozone governments. Malta's prime minister Joseph Muscat said "the absence of a concrete proposal" wouldn't help the eurozone leaders' summit.

Greece will a make formal proposal on Wednesday to tap the EU's €500bn bailout fund, the European stability mechanism, said the chair of the Eurogroup, Jeroen Dijsselbloem, after the meeting ended with scant results. Finance ministers will discuss the idea by phone.

"All of this has to be done in a matter of days. We have very little time," he said.

The leaders of France and Germany said they expected Greece to come up with "serious and credible proposals" at today's summit.

The demand was echoed by finance ministers, who stressed they wanted to see the Greek government sign up to reforms. Several made it clear they would not support any write-off of Greek debt.

"We are not in the business of renegotiating debt," said Finland's finance minister, Alexander Stubb. "That was already done in 2011 and 2012," referring to restructuring of Greek debts that imposed heavy losses on private creditors.

Stubb said Finland's commitments to Greece had proved to be more than anyone ever expected, totalling 10% of the Finnish government budget.

The European commission, the guardian of EU law, was openly split. Valdis Dombrovskis, the Latvian commissioner in charge of the euro, said a Greek exit from the eurozone could not be excluded. Pierre Moscovici, the French commissioner in charge of the economic policy, struck a different note, saying that Grexit would be a terrible collective failure.

Juncker blamed the Greeks for walking out of talks and said it was up to Athens to come up with proposals that would allow Europe to get out of this situation.

The depths of mistrust were highlighted by Latvia's finance minister, Jãnis Reirs, who said his compatriots were surprised at the referendum result. "Latvian people do not understand Greek people," he said.

As talks in Brussels grind on, Greek banks remain closed and it is far from clear they will be able to reopen on Thursday, when an extended bank holiday is due to end.

Greece has to find €3.5bn to meet a debt repayment to the European Central Bank in two weeks' time (20 July). Failure to make the payment would leave the ECB with little choice but to declare Greek banks insolvent and cut off all emergency aid, almost certainly triggering a eurozone exit.

But many analysts suspect Greek banks cannot last this long without financial help.

The European Central Bank raised the pressure on Greek banks on Monday night by tightening access to emergency credit. The Frankfurt-based institution has pumped €89bn (£63bn) into the Greek financial system in recent months, but Greek banks can only tap this emergency aid by putting up collateral, such as Greek government bonds.

The bank said on Monday it was "adjust[ing] the haircuts accepted on collateral", meaning that Greek assets are now deemed more risky, to secure smaller amounts of emergency funds.

"Restoration of liquidity in the Greek banking system [is] an immediate priority," Greek president Prokopis Pavlopoulos wrote in a letter to the European council president Donald Tusk.

The Greek prime minister, Alexis Tsipras, pressed for capital controls to be lifted when he spoke to the head of the ECB, Mario Draghi, on Monday. After a hectic day of meetings with Greek party leaders, Tsipras also spoke to Christine Lagarde of the International Monetary Fund. She told him the IMF was no longer able to provide money to Greece until it clears its arrears, following last week's default on a €1.6bn loan repayment.

Analysts at Capital Economics said Greece's creditors may soon have to "accept the inevitable" and cut Greece loose.

"Greece and its creditors may yet find a way to step back from the brink. But without major debt relief, any near-term deal looks likely just to put off the inevitable for a bit longer," wrote chief European economist Jonathan Loynes.

"Meantime, Greece's economic and fiscal position will continue to worsen and the eurozone's policymakers will devote yet more time and effort to what looks increasingly like a hopeless cause. We don't say it at all lightly. But it might well be time to let Greece go."

[Source: By Jennifer Rankin, Brussels, The Guardian, London, 07Jul15]
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