Helena Smith in Athens Monday 15 June 2015
Exit from Eurozone a step closer as EU officials dismiss Alexis Tsipras’s reforms as incomplete, with talks halted after less than an hour
Last-ditch talks aimed at breaking the impasse between Athens and its international creditors have collapsed in acrimony with European Union officials dismissing Greece’s latest reform package as incomplete in a step that pushes the country closer to leaving the Eurozone.
What had been billed as a last attempt to close the gap between Alexis Tsipras’s anti-austerity government and the bodies keeping debt-stricken Greece afloat was halted late on Sunday after less than an hour of negotiations in Brussels.
There is a significant gap between the plans of the Greek authorities and requirements of the commission, ECB and IMF
European commission statement
In a tersely worded statement, the European commission declared talks would resume when euro area finance ministers gather in Luxembourg on Thursday. The meeting could be decisive in determining the fate of a nation that is dependent on bailout funds from the EU and International Monetary Fund to avert default.
“While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of the commission, European Central Bank and IMF,” the statement said. In fiscal terms, the differences amounted to €2bn (£1.45bn) a year in permanent budget savings.
Olivier Blanchard, chief economist at the International Monterary Fund (IMF), said Brussels should be prepared to delay more of Athens’ debt repayments. Photograph: Bloomberg via Getty Images
The gulf between the sides prompted a call from the IMF’s chief economist for both sides to compromise further. Olivier Blanchard said Brussels should be prepared to delay more of Greece’s debt repayments, accept only limited reforms and cut the interest applied to debt-relief loans, while Tsipras should offer further pension reforms and accept that some VAT exemptions must be dropped.
“On the one hand, the Greek government has to offer truly credible measures to reach the lower target budget surplus and it has to show its commitment to the more limited set of reforms,” Blanchard wrote in his economic blog. “On the other hand, the European creditors would have to agree to significant additional financing and to debt relief sufficient to maintain debt sustainability.”
The intervention by Blanchard late on Sunday will be widely seen as supportive of the Greek position, though with the sting for Athens in his call for pension reform, which Yanis Varoufakis, the Greek finance minister, repeated on Saturday was a deal breaker.
With the future of Greece in the Eurozone on the line as never before – and time now of the essence if Athens is to honour a €1.6bn debt repayment to the IMF on 30 June – the magnitude of the moment was not lost on Greek officials or the prime minister’s radical left Syriza party.
Yannis Dragasakis, the deputy prime minister who flew to Brussels to head talks, said Athens remained ready to conclude negotiations “with a mutually beneficial agreement”, suggesting there was still room for compromise.
Blaming foreign lenders for the breakdown in talks, he said the Greek government had submitted complementary proposals that “fully cover” the fiscal gap and the primary surplus – the two major sticking points between the two sides.
Creditors, he said, had insisted on pension cuts and increases in VAT both worth 1% of GDP – or €3.6bn – to close the projected gap, measures that Athens regards as untenable for a population already pauperised by five years of biting austerity. It was the second economic reform package to be proposed by the Greek government and rejected by creditors in June.
“Despite the presence of the Greek delegation in Brussels, there was no response on the part of the institutions [European commission, ECB and IMF] for discussions at the same [political] level or authorisations that would permit a solution to the issues that remain open,” Dragasakis said in a statement.
Euclid Tsakalotos, Greece’s chief negotiator, said it was clear “the opposite side did not have a mandate to negotiate”. He told the Guardian in a text message: “We made huge efforts to meet them halfway but they insisted on both pension cuts and the increase in VAT on restaurants and would not accept closing the gap even partially via administrative measures to reduce tax evasion, even though this was a central plank of our electoral programme. Moreover, they told us bluntly they had no mandate to discuss a compromise! So much for negotiating.”
With developments taking such a dramatic turn, opposition parties urged Prokopis Pavlopoulos, the head of state, to call an emergency meeting of political leaders. “The country has to remain intact within Europe and this has to be understood by everyone,” said the centrist party, To Potami. “We await a responsible reaction from the political leadership of the country.”
Negotiators, who included the young prime minister’s closest confidant Nikos Pappas, were due to return to Greece on Sunday night.
Failure to keep Greece in the euro, after years of arduous negotiations and two emergency bailouts totalling €240bn, would send it lurching into the unknown and mark a historic blow to the EU’s most ambitious project.
Greek officials flew to Brussels after Tsipras signalled he would soften his stance and accept painful compromises in return for promises to alleviate the country’s staggering debt.
Government sources had indicated that Athens was “very close” to sealing a deal that would release more than €7bn in bailout funds the country now desperately needs to avoid defaulting on loans to the IMF and ECB over the summer. Creditors have refused to disburse financial assistance since August as both sides have wrangled over reforms.
Sigmar Gabriel, Germany’s vice-chancellor, launched a scathing attack on the Greek government’s ‘gambling away the future of their country’. Photograph: NurPhoto/Rex Shutterstock
A gesture on the ever-contentious issue of Greek debt would also allow Tsipras to sell a deal to hardliners in Syriza, which was catapulted into power in January on a pledge to end five gruelling years of “self-defeating” austerity, and to Greeks at large.
At more than €320bn, the equivalent of 180% of the country’s entire economic output, Greece has the highest debt-to-GDP ratio in the EU with economists far and wide agreeing it is unsustainable. Following the breakdown in talks, left-wing militants implored the government not to concede on any measures that would entail “the extinction of the Greek people”.
Fears now abound that Greece could be heading for a Cyprus-style denouement with the ECB pulling the plug on the emergency liquidity assistance (ELA) it has been drip-feeding Greek banks. The Frankfurt-based institution has come under growing pressure to make such a move in recent weeks.
Indicative of the growing tensions between Athens and Berlin, the biggest contributor of Greece’s bailout programme to date, Sigmar Gabriel, Germany’s vice-chancellor and head of the country’s Social Democratic party – who has long been seen as a friend of Greece – deplored the Greek government’s negotiating tactics in an article for Monday’s daily Bild newspaper.
“The game theorists of the Greek government are in the process of gambling away the future of their country,” he wrote in an excoriating critique of Varoufakis, whose academic expertise includes game theory. “Europe and Germany will not let themselves be blackmailed. And we will not let the exaggerated electoral pledges of a partly communist government be paid for by German workers and their families.”