By Mehreen Khan 11 July 2015
Berlin readies five-year expulsion plan for Greece, after Athens is accused of destroying the trust of its partners
A demonstrator holds a placard reading "Tsipras, the people said no" during an anti-austerity rally in the northern Greek port city of Thessaloniki Photo: AP
The German government has begun preparations for Greece to be ejected from the Eurozone, as the European Union faces 24 hours to rescue the single currency project from the brink of collapse.
Finance ministers failed to break the deadlock with Greece over a new bail-out package, after nine hours of acrimonious talks as creditors accused Athens of destroying their trust. It leaves the future of the Eurozone in tatters only 15 years after its inception.
In a weekend billed as Europe’s last chance to save the monetary union, ministers will now reconvene on Sunday morning ahead of an EU leaders' summit later in the evening, to thrash out an agreement or decide to eject Greece from the Eurozone.
Should no deal be forthcoming, the German government has made preparations to negotiate a temporary five-year euro exit, providing Greece with humanitarian aid while it makes the transition.
An incendiary plan drafted by Berlin's finance ministry, with the backing of Angela Merkel, laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a "time-out" solution where it would be expelled from the Eurozone.
German vice-chancellor Sigmar Gabriel said they were Greece's only viable options, unless Athens could come up with better alternatives.
"Every possible proposal needs to be examined impartially" said Mr Gabriel, who is also Germany's socialist party leader.
Creditors voiced grave mistrust with Athens, a week after the Leftist government held a referendum in which it urged the Greek people to reject the bail-out conditions it has now signed up to.
A desperate Alexis Tsipras managed to secure parliamentary backing for a raft of spending cuts and tax rises to secure a new three-year rescue programme worth around €75bn-€100bn.
But finance ministers rounded on Mr Tsipras for offering to implement measures that he had previously dubbed "humiliating" and "blackmail" only seven days ago.
“We will certainly not be able to rely on promises,” said Germany's hard-line finance minister, Wolfgang Schäuble.
“In recent months, during the last few hours, the trust has been destroyed in incomprehensible ways," he said.
"We are determined to not make calculations that everyone knows can’t be trusted. We will have exceptionally difficult negotiations. I don’t think we will reach an easy decision.”
Germany's Wolfgang Schaeuble is the architect of a "velvet separation" for Greece
There is now open revolt among the Eurozone's 19 member states, with a group of smaller creditor nations threatening to reject a European rescue from the bloc's fire fighting fund, the ESM.
Finland's parliament stands on the brink of withdrawing its negotiating mandate from the government, in a move which would force creditors to adopt an emergency voting procedure to pass a new rescue deal.
Alexander Stubb, Finland's finance minister said: "I don't believe we're about to grant any type of additional loans to Greece, at least in the euro group, such stance was not in sight".
The country's Eurosceptic True Finns party is poised to bring down the two-month old government if it gives its assent to a new Greek rescue.
"It is still very difficult, but work is still in progress", said a dejected Jeroen Dijsselbloem, president of the Eurozone's finance ministers, after leaving talks at midnight on Sunday.
“There is a major issue of trust – can the Greek government be trusted to actually do what they are promising, to implement over the coming weeks, days and years?” questioned Mr Dijsselbloem.
“Even if it’s all good on paper, the question is whether it will get off the ground and will it happen?”
Peter Kazimir, the Slovakian finance minister and one of the harshest critics of European largesse to Greece, accused Mr Tsipras of “time travel”.
He said that Greece’s proposed reforms would have been enough for the second programme, but added: “I’m afraid this is not enough for a third package.”
This is like 'time travel' - package would be enough for completion of 2nd programme. Afraid this is not enough for 3rd package
France remains Greece’s most powerful ally in the divisive talks, having made frantic diplomatic efforts to convince smaller and poorer Eurozone members that they should provide more money to rescue Greece. These efforts may now be in vain.
Greece's Euclid Tsakalotos and France's Michel Sapin in Brussels on Saturday
Michel Sapin, the French finance minister, however commended the Greek government for taking a “brave” step towards compromise. “Now we need to have confidence again, to have certainty that decisions announced are decisions which are actually taken by the Greek government,” he said.
Creditors are demanding Athens adopt even tougher austerity measures in return for the release of funds that would allow Greece to reopen its banks and avoid defaulting on its debts.
The crisis has bought Greece's banking system to its knees. Banks, which have been shut for nearly two weeks, need recapitalising to the tune of €25bn - almost double that previously reserved for Greece's financial system before the economy was thrown into fresh turmoil in recent weeks.
Greece's economics minister George Stathakis admitted that even with a new deal, the country would not see an easing of capital controls such as ATM withdrawals, currently at €60-a-day, for another two months.
Mr Tsipras’s last gasp attempt to secure a deal has split his Left-wing Syriza party. At least 17 of his own MPs voted against the plan or abstained when it came before parliament on Friday night.
The package was eventually passed with the support of the opposition, with 251 out of 300 MPs voting in favour.
Prominent Syriza members – including Yanis Varoufakis, the former finance minister, chose to abstain.
Mr Tsipras is now poised to embark on a major reshuffle of his cabinet as early as next week. Greece's paymasters want the government to enact legislation on labour market reform, tax hikes and pension cuts as early as next week and prove their commitment to stay in the euro.
The prime minister's main aim to ensure that his capitulation over austerity will be enough to secure the cancellation of some of Greece’s €330bn public debt mountain.
The International Monetary Fund has recommended a bold program of debt forgiveness, placing it at odds with European creditors. Washington has been forced to step in to push the Europeans to agree to lower interest rates and prolong repayments on Greek debt into the middle of the century.