Greece edges closer to de­fault

Talks over a bailout pack­age break down, and lead­ers vote to hold a ref­er­en­dum on cred­i­tors’ pro­pos­als.

Los Angeles Times - - THE WORLD - By Henry Chu henry.chu@latimes.com

LON­DON — Greece moved closer to a per­ilous bank­ruptcy Satur­day af­ter talks over a bailout pack­age broke down with its cred­i­tors, who re­jected any emer­gency ex­ten­sion of the aid that has kept the debt-rid­den Mediter­ranean na­tion afloat.

The other 18 na­tions that share the euro with Greece said they would not grant a grace pe­riod or await the out­come of a snap ref­er­en­dum the Greek gov­ern­ment plans to hold next week­end on the bailout pro­pos­als on of­fer from in­ter­na­tional lenders. With­out a deal in hand, Athens is ex­pected to run out of money by Tues­day and de­fault on a pay­ment it owes the In­ter­na­tional Mon­e­tary Fund.

Such a de­fault could throw the Greek econ­omy into chaos, shut down the coun­try’s banks and threaten its mem­ber­ship in the Eu­ro­zone. The ill ef­fects could spread to neigh­bor­ing na­tions and even the global econ­omy.

Euro­pean of­fi­cials blamed Greece’s left-wing gov­ern­ment for “uni­lat­er­ally” break­ing off ne­go­ti­a­tions by an­nounc­ing early Satur­day its sur­prise in­ten­tion to con­duct a ref­er­en­dum on the cred­i­tors’ pro­pos­als — and to ac­tively cam­paign against their ap­proval.

“The process wasn’t fin­ished, as far as we were con­cerned. The pro­pos­als weren’t de­fin­i­tive. They weren’t for­mally dis­cussed or de­cided upon,” said Jeroen Di­js­sel­bloem, the leader of the Eu­ro­zone’s fi­nance min­is­ters. “That is a sad de­ci­sion for Greece, be­cause it has closed the door on fur­ther talks where the door was still open in my mind.”

But Greek of­fi­cials ac­cused their cred­i­tors of back­ing them into a cor­ner and re­fus­ing to budge on a bailout for­mula pre­scrib­ing more of the same aus­ter­ity that has made the Greek econ­omy con­tract by 25% in the last five years.

Early Sun­day, the Greek Par­lia­ment, led by Prime Min­is­ter Alexis Tsipras’ anti-aus­ter­ity Syriza party, voted to put the cred­i­tors’ pro­posed bailout terms to a ref­er­en­dum July 5. Of par­lia­ment’s 300 law­mak­ers, 178 voted in fa­vor and 120 against, with two peo­ple ab­sent.

To cheers from his back­benchers, Tsipras de­clared that Greece would not be bul­lied into sub­mis­sion by its Euro­pean part­ners and urged his com­pa­tri­ots to vote no in the plebiscite. But op­po­si­tion lead­ers ac­cused him of putting the coun­try’s mem­ber­ship in the Europe- an Union at risk.

The move to hold a ref­er­en­dum took Greece’s ne­go­ti­at­ing part­ners by sur­prise. An­a­lysts said that if it was a ploy to scare them into sweet­en­ing the deal, then it back­fired spec­tac­u­larly, with the other Eu­ro­zone na­tions dig­ging in their heels. In­stead of talk­ing about new so­lu­tions Satur­day, Di­js­sel­bloem spoke of in­su­lat­ing the rest of Europe from the fall­out of a Greek de­fault.

“The euro area author­i­ties stand ready to do what­ever is nec­es­sary to en­sure fi­nan­cial sta­bil­ity of the euro area,” fi­nan­cial min­is­ters said in a state­ment af­ter the col­lapse of talks Satur­day.

Some Eu­ro­zone of­fi­cials also said that the ref­er­en­dum would es­sen­tially be moot, be­cause Greece’s bail- out will have ex­pired by then and the Eu­ro­zone’s pro­pos­als would no longer be ap­pli­ca­ble.

De­spite the brinkman­ship, the Eu­ro­zone re­mains ea­ger to see a deal struck. Although na­tions such as Ger­many and France feel they can weather the con­se­quences of a Greek de­fault and its po­ten­tial exit from the euro, they know that the loss of one of its mem­bers would raise se­ri­ous ques­tions over the sta­bil­ity of the cur­rency.

The Greek fi­nance min­is­ter, Yanis Varoufakis, warned as much when he crit­i­cized the Eu­ro­zone’s de­ci­sion not to ex­tend the cur­rent bailout by a few days.

“Es­pe­cially given that there is a very high prob­a­bil­ity that Greeks will go against our rec­om­men­da­tion and vote in fa­vor of the in­sti­tu­tions’ pro­posal, that re­fusal will cer­tainly dam­age the cred­i­bil­ity of the [Eu­ro­zone] as a demo­cratic union of part­ner mem­ber states, and I’m very much afraid that that dam­age will be per­ma­nent,” Varoufakis said.

Amid the harsh rhetoric on both sides, at least one Eu­ro­zone na­tion, France, ex­pressed hope that a so­lu­tion could still be found and of­fered to me­di­ate.

Other Eu­ro­zone of­fi­cials took pains to em­pha­size that Greece re­mained a mem­ber of their club — even though their joint state­ment came with the foot­note: “Sup­ported by all mem­bers of the Eurogroup ex­cept the Greek mem­ber.”

Greeks seemed to take the drama in stride. Though an­a­lysts have warned that Greek banks may find them­selves broke on Mon­day morn­ing, their life­line from the Euro­pean Cen­tral Bank cut off ab­sent a deal, there was no run on ATMs in Athens on Satur­day.

Some longer lines than usual were re­ported at cash ma­chines, but no scenes of panic. That, though, could be be­cause, rather than a run, a “slow jog ” on the banks has al­ready oc­curred, with de­pos­i­tors hav­ing with­drawn bil­lions of eu­ros from the fi­nan­cial sys­tem over the last few weeks to tide them over in case the banks go bust, cap­i­tal con­trols are im­posed and Greece’s euro mem­ber­ship is threat­ened.

Pet­ros Karadjias As­so­ci­ated Press

GREEK PRIME MIN­IS­TER Alexis Tsipras speaks to law­mak­ers dur­ing an emer­gency ses­sion of Par­lia­ment, which re­sulted in a ref­er­en­dum called for next week­end over bailout pro­pos­als. Greece’s gov­ern­ment is ex­pected to run out of money by Tues­day.

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