The Day

Greece faces a hard line

Germany keeps up pressure after austerity vote


Athens, Greece — Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingnes­s to soften the push for austerity that has proved so contentiou­s.

The growing rift among European leaders threatens to complicate any new negotiatio­ns, as the Greek government moves to restart talks for an internatio­nal bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.

If a deal is not struck soon, Greece will probably default on a batch of internatio­nal debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or IOUs to pay its domestic bills, prompting it to leave the euro currency.

The country’s financial state is growing increasing­ly dire.

As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion

euros, will not necessaril­y be sufficient to keep the money flowing to depositors.

Faced with a funding crisis, the government extended a weeklong bank holiday through Wednesday and said that a withdrawal cap of 60 euros ($67) per day from ATMs could be tightened. On Monday, long lines formed again at cash machines throughout Athens as people continued to withdraw whatever funds they could.

Prime Minister Alexis Tsipras of Greece has moved quickly to take advantage of the vote results, making the first steps toward conciliati­on with the country’s creditors.

The combative finance minister, Yanis Varoufakis, abruptly resigned at Tsipras’ behest. He was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Varoufakis as Greece’s lead negotiator in April.

“I won’t hide the fact that I’m nervous and anxious,” Tsakalotos said at his swearing-in Monday. “I understand that I’m assuming my post at a difficult time.”

The prime minister also persuaded most opposing political parties to back his basic demands from the country’s creditors.

After a six- hour meeting, the leaders of Greece’s five main political parties issued a statement saying they wanted any negotiatio­n to include a discussion of relief from the country’s debt load — a key sticking point with creditors. They are also pushing for immediate help to keep the banks afloat, quick economic aid to tackle unemployme­nt and new bailout money to cover current debt obligation­s.

In return, they said, Greece would be willing to deliver “credible reforms based on the fair distributi­on of the burden and the promotion of growth with the smallest possible recessiona­ry impact.”

But the impasse over a bailout threatens to take on bigger dimensions, with implicatio­ns for European unity.

Germany, the eurozone country to which Greece owes the most money, remained resistant. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiatio­ns with Athens at this point. The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.

Despite Germany’s tough stance, other European leaders seemed eager to avoid the specter of a Greek exit from the euro. While officials in France and Brussels said on Monday that they were unhappy and dumbfounde­d with the vote, they held the door open to the possibilit­y of a compromise between Greece and its creditors.

At a news conference in Brussels on Monday, the European Commission’s vice president for euro affairs, Valdis Dombrovski­s, said that the vote in Greece would “dramatical­ly weaken” the country’s negotiatin­g position with creditors and had made things “more complicate­d.”

But now was the time to seek a way forward, he added, saying, “If all sides are working seriously, it’s possible to find a solution, even in this very complicate­d situation.”

In France, Finance Minister Michel Sapin told French radio that while Greece’s vote “resolves nothing,” France could support debt relief for Greece should Tsipras come forward with a proposal containing “serious” terms for a new bailout package. Sapin’s remarks came ahead of a meeting set for Monday evening in Paris between President François Hollande of France and Merkel to discuss how to deal with Greece.

Both leaders called on Greece to submit urgent proposals to avoid a possible exit from the eurozone. The Greek government said that Tsipras and Merkel agreed that he would present new debt proposals today, when eurozone leaders are set to meet in Brussels.

Greek banks could continue to limp along for a few more weeks. But they may face an existentia­l crisis at the end of the month if the Greek government does not make a payment of 3.5 billion euros due July 20 on bonds held by the European Central Bank. That would seem nearly impossible unless Greece gets some financial aid.

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

The European Central Bank 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, a U. S. investor who owns a large stake in Eurobank Ergasias, the third-largest bank in Greece. “A default there would likely force the ECB to come down on the banks.”

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