Greece running out of time and cash

BRUSSELS/ATHENS—Greece faces a last chance to stay in the eurozone on Tuesday when Prime Minister Alexis Tsipras puts proposals to an emergency eurozone summit after Greek voters resoundingly rejected the austerity terms of a defunct bailout.

With Greek banks rapidly running out of cash and the European Central Bank (ECB) slowly tightening the noose on their funding, Tsipras must persuade the bloc’s other 18 leaders, many of whom are exasper-

ated after five years of Greek crisis, to open rapid negotiations for a major new loan to rescue his country.

The leaders of Germany and France, the currency area’s two main powers, said after conferring on Monday that the door was still open to a deal to save Greece from plunging into economic turmoil and ditching the euro.

But German Chancellor Angela Merkel, facing rising pressure in her country to cut Greece loose, made it clear it was up to Tsipras to come up with convincing proposals after Athens spurned the tax rises, spending cuts and pension and labor reforms that were on the table before its bailout program expired last week.

From the Greek side, the key to making any deal politically acceptable will be to win a stronger commitment from Merkel and other lenders to reschedule Greece’s giant debt burden, which the International Monetary Fund (IMF) says is unsustainable.

Without some firmer pledge of debt relief, neither Greece nor the IMF are likely to accept a deal. But that may be more than Germany and its northern allies can swallow.

Not much time left

“The door is open to negotiations, but there isn’t much time left and the situation is urgent both for Greece and for Europe,” French President Francois Hollande said in a joint media appearance with Merkel in Paris.

At stake at the emergency summit beginning at 6 p.m. (1600 GMT) in Brussels is more than just the future of Greece, a nation of 11 million that makes up just 2 percent of the eurozone’s economic output and population.

If Greek banks run out of money and the country has to print its own currency, it could lead to a state leaving the euro for the first time since it was launched in 1999, creating a precedent and raising doubts about the long-term viability of an incomplete European monetary union.

“Even if it did not trigger a short-term domino effect, the integrity of the eurozone would come under fresh threat with each episode of political uncertainty within member countries,” said Thibault Mercier, an analyst at BNP Paribas.

Strengthened by the overwhelming 61.3 percent “no” vote in Sunday’s referendum, the leftist Tsipras won the unprecedented support of all other Greek party leaders on Monday and replaced his abrasive finance minister, Yanis Varoufakis, with the soft-spoken debt negotiator, Euclid Tsakalotos.

In an intensive round of telephone diplomacy, Tsipras called the heads of the ECB, the IMF and the European Commission, as well as Merkel and Russian President Vladimir Putin.

But the Greek prime minister gave the public little clue of what reform concessions he would make to try to convince deeply skeptical Europeans to lend Athens more money after five months of acrimonious and fruitless negotiations.

His proposals were not expected to go much beyond a letter he sent to eurozone partners last week, accepting most of the terms of a creditors’ offer that was no longer on the table, but still seeking some loopholes for social or coalition reasons.

Make or break

Greek newspapers dramatized the make-or-break nature of the Brussels showdown.

Centrist daily Ethnos headlined: “Time has run out for a solution before catastrophe,” while the center-right Eleftheros Typos said: “Tsipras’ games finish at today’s council: Time of crisis: deal or Grexit.”

Greek newspapers said the proposals would be based on ideas that European Commission President Jean-Claude Juncker put forward at the end of June with a few tweaks and would not differ much from the last plans presented by Athens itself last week.

Eurozone leaders were irritated that Juncker had gone beyond the agreed negotiating mandate of the three creditor institutions in his last-ditch diplomacy, and it is not clear that they will be more receptive to his ideas now.

A clear majority of Greece’s 18 eurozone partners favor a hardline at the summit, arguing that they too are democracies and that Greeks should not get easier money because they had rejected the austerity terms, casting further doubt on whether they would implement any reforms agreed now.

The ECB left unchanged its emergency liquidity lifeline for Greek banks but raised the discount it charges on collateral they have to present for funds—a measure banking sources said was largely symbolic since the total they could borrow was capped.

A bank closure in force since the talks collapsed was prolonged until Thursday at least, and cash withdrawals remain limited to 60 euros ($67) a day, with 20 euro notes running out.

Greek banks could continue to limp along for a few more weeks. But they face catastrophe if the Greek government does not make a payment due on July 20 on bonds held by the ECB. That would seem nearly impossible unless Greece gets some financial aid.

A missed payment to the ECB would signal unmistakably that the government is bankrupt. This would drag the Greek banks down, too, since they would suffer huge losses on their portfolios of the country’s government bonds.

The ECB would have little choice but to stop providing emergency loans that have been keeping the banking system afloat. The central bank is not allowed to lend to insolvent banks.

“The moment of truth will be no later than July 20,” said Wilbur Ross, an American investor who owns a large stake in Eurobank Ergasias, the thirdlargest bank in Greece. “A default there would likely force the ECB to come down on the banks.”