Greece on the brink As dead­line looms, fi­nance of­fi­cials balk

The Washington Post Sunday - - FRONT PAGE - BY GRIFF WITTE griff.witte@wash­

lon­don — Greece’s long-run­ning stand­off with its Euro­pean cred­i­tors ap­peared headed on Satur­day for an abrupt — and po­ten­tially cat­a­clysmic — end­ing as the con­ti­nent’s fi­nance min­is­ters re­jected an emer­gency Greek re­quest to help the cash-starved coun­try meet a Tues­day dead­line for pay­ing back its debts.

The de­vel­op­ment, just hours af­ter Greece’s prime min­is­ter stunned the con­ti­nent with plans to hold a na­tion­wide ref­er­en­dum on Europe’s latest pro­pos­als, makes it in­creas­ingly likely that Greece will de­fault — and could soon crash out of the euro zone al­to­gether.

Re­flect­ing the newly dire out­look, peo­ple formed lines at ATMs across Greece, seiz­ing on per­haps their last chance to with­draw their sav­ings. Some went away emp­ty­handed af­ter the ma­chines ran dry.

With spec­u­la­tion mount­ing that the banks may lack the funds to re­open Mon­day morn­ing, Euro­pean of­fi­cials hud­dled be­hind closed doors to plot out how to con­tain the dam­age of a Greek fi­nan­cial melt­down. The Greek fi­nance min­is­ter was point­edly ex­cluded from those talks, which ended with a state­ment from the other 18 euro-zone coun­tries urg­ing Greek author­i­ties to im­ple­ment cap­i­tal con­trols.

The state­ment also high­lighted the safe­guards that have been im­ple­mented to keep debt con­ta­gion from spread­ing to other vul­ner­a­ble economies, sug­gest­ing that if Greece is forced to aban­don the euro, the col­lat­eral dam­age may be lim­ited. But be­cause no coun­try has left the euro zone in its 16-year history, no one knows just how ex­ten­sive the im­pact­may be.

The col­lapse of ne­go­ti­a­tions on Satur­day was the most omi­nous turn in a process that has been poi­soned from the start by bit­ter mis­trust be­tween Greece’s rad­i­cal left­ist gov­ern­ment and the aus­ter­ity-minded heavy­weights who set pol­icy in Europe.

Although both sides have re­peat­edly ex­pressed a de­ter­mi­na­tion to keep Greece in­side the com­mon cur­rency— and to avoid at all costs an un­con­trol­lable and po­ten­tially dis­as­trous de­fault — that shared as­pi­ra­tion has not been enough to bridge the sub­stan­tial di­vide.

As has be­come cus­tom­ary, each on Satur­day blamed the other for the break­down.

Greek Fi­nance Min­is­ter Yanis Varoufakis called Satur­day “a sad day for Europe” and said its de­ci­sion to re­ject his re­quest to ex­tend Greece’s bailout for sev­eral more weeks “will cer­tainly dam­age the cred­i­bil­ity of the euro group as a demo­cratic union.”

Euro­pean of­fi­cials coun­tered that Greek Prime Min­is­ter Alexis Tsipras had blind­sided them by call­ing a ref­er­en­dum early Sun­day on a pro­posal that was still be­ing ne­go­ti­ated, a move that ef­fec­tively tor­pe­doed any chance for a deal.

“The ne­go­ti­a­tions are clearly ended, if I un­der­standMr. Tsipras cor­rectly,” said Ger­man Fi­nance Min­is­ter Wolf­gang Schäu­ble as the con­ti­nent’s top fi­nance of­fi­cials gath­ered for their fifth emer­gency meet­ing in the past two weeks. “We have no grounds for fur­ther dis­cus­sions.”

Varoufakis later chal­lenged Euro­pean lead­ers to come back with a new pro­posal and sig­naled an open­ness to fur­ther talks. But the ac­ri­mony with which talks ended Satur­day sug­gested that a re­turn to the ne­go­ti­at­ing ta­ble is highly un­likely be­fore two crit­i­cal tests in the week ahead.

The first will come Mon­day, when Greek banks that have grown ever more re­liant on emer­gency loans from the Euro­pean Cen­tral Bank face the prospect of re­open­ing for busi­ness with­out new life­lines.

The sec­ond will be Tues­day, whena $1.7 bil­lion pay­ment to the In­ter­na­tional Mon­e­tary Fund comes due. TheIMFhas re­peat­edly said it will not of­fer an ex­ten­sion on that dead­line. Greek of­fi­cials, mean­while, say they do not have the money to make the pay­ment un­less the coun­try’s cred­i­tors un­lock $8 bil­lion in bailout funds that have been frozen as the ne­go­ti­a­tions have stalled.

Tsipras has set the ref­er­en­dum for July 5, although it is un­clear ex­actly what Greek vot­ers will be de­cid­ing. In an­nounc­ing the vote, Tsipras said he wanted to give the Greek peo­ple the chance to vote on the latest pro­posal by Greece’s cred­i­tors, which he at­tacked as “an ul­ti­ma­tum” that would place “un­bear­able new bur­dens on the Greek peo­ple.”

The Euro­pean Cen­tral Bank, the Euro­pean Com­mis­sion and the IMF have to­gether pro­vided Greece with $264 bil­lion in bailouts over the past five years as the coun­try has reck­oned with sky­high debts.

Af­ter years of with­er­ing aus­ter­ity poli­cies im­posed by Euro­pean pay­mas­ters as a con­di­tion of those deals, Greece in Jan­uary re­jected the medicine and elected Syriza, a rad­i­cal left­ist party that promised to tear up the old agree­ments and start anew.

Greece has re­peat­edly de­manded that Europe re­duce the na­tion’s debt load and ease up on aus­ter­ity, which of­fi­cials say has dev­as­tated the econ­omy and sent un­em­ploy­ment rock­et­ing to 25 per­cent. But Euro­pean of­fi­cials have been un­will­ing to hand Syriza a vic­tory and have in­sisted that the coun­try keep to strict tar­gets for belt-tight­en­ing.

The past week be­gan with rare op­ti­mism, as Greece sub­mit­ted pro­pos­als that Euro­pean of­fi­cials ini­tially wel­comed as a sig­nif­i­cant step for­ward af­ter months of dead­lock. But by Wed­nes­day, the cred­i­tors had sub­mit­ted coun­ter­pro­pos­als for slash­ing pen­sions and cut­ting spend­ing. Greek of­fi­cials re­jected them, say­ing they would cross the gov­ern­ment’s red lines.

Dur­ing de­bate in the Greek Par­lia­ment on Satur­day over­whether the ref­er­en­dum should go ahead, Tsipras was given a stand­ing ova­tion from sup­port­ers who cheered his de­fi­ance of Euro­pean author­i­ties. But op­po­si­tion lead­ers and oth­ers ac­cused him of reck­lessly en­dan­ger­ing the coun­try’s place in Europe.

“The na­tion’s most vi­tal in­ter­ests de­mand that the coun­try re­mains at the heart of Europe. The E.U.’s ac­tual short­com­ings do not, in any way, negate this,” said for­mer prime min­is­ter Costas Kara­man­lis, who spoke out af­ter a long si­lence. “Foolish choices that un­der­mine this prin­ci­ple push the coun­try to ad­ven­tures, with un­pre­dictable and pos­si­bly ir­re­versible con­se­quences.”


Peo­ple wait out­side a closed branch of Pi­raeus Bank on Satur­day in Athens. Greek PrimeMin­is­ter Alexis Tsipras called for a ref­er­en­dum on aus­ter­ity de­mands from for­eign cred­i­tors.


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