Greek failure to make IMF payment deals historic blow to Eurozone

Ian Traynor and Jennifer Rankin in Brussels Wednesday 1 July 2015

Athens left without financial lifeline following fortnight of non-stop brinkmanship at highest level of EU leadership

Greece goes to the polls on Sunday in a referendum called by Tsipras to vote on whether to accept bailout terms which are no longer on the table. Photograph: Petros Karadjias/AP

Greece was left alone, insolvent and almost bankrupt after five years of €240bn (£170bn) in European bailouts dried up and the country became the first in the EU to default on its creditors. The country failed to make a €1.5bn payment to the International Monetary Fund on time and has thrust the Eurozone into an emergency.

The long-running debt debacle left Greece on the brink of financial collapse, worsening recent years of wrenching austerity, and represented a historic blow to a Europe committed to the irreversibility of its 16-year-old single currency.

The deadline on Greece’s bailout programmes, inaugurated in 2010, ended at midnight on Tuesday night, leaving the country without a financial lifeline.

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In a sudden referendum called on creditors’ bailout terms which are formally no longer on the table, Greeks are to vote on Sunday on what EU leaders say is a choice between quitting or staying in the euro.

After a fortnight of non-stop brinkmanship at the highest level of EU leadership over how to resolve the impasse over Greece’s financial rescue, the left-wing Syriza government of the prime minister, Alexis Tsipras, tabled surprise new proposals on Tuesday, demanding that the bailout be rolled over into a new two-year programme worth almost €30bn to Greece to be spent on servicing debt.

The demand included calls for a month of bridging finance to avoid the IMF default and for broader debt relief without mentioning Greek concessions in return for acceptance. It was promptly spurned by key creditors as too little too late.

“We won’t negotiate about anything new at all until a referendum, as planned, takes place,” said the German chancellor, Angela Merkel. “This evening the programme expires.”

The 19 finance ministers of the single currency bloc talked for merely an hour by teleconference on Tuesday evening and dismissed the last-minute brinkmanship from Tsipras.

But Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee, said the ministers would confer again on Wednesday and that Athens was expected to present further proposals on how to resolve the critical situation.

Tuesday’s rollercoaster of on-off negotiations marked the lowest of lows in the Eurozone's five-year sovereign debt saga. As the midnight bailout deadline approached, hope of striking a deal between the creditors and the radical leftists in Athens dissolved.

There will be no more IMF lending after the failure to repay the debt. And for the first time since 2010, Greece is bereft of a Eurozone and European Central Bank package keeping it afloat.

The Greek government insisted on Tuesday the ballot meant Athens remained at the negotiating table, while rejecting the terms on offer. Eurozone leaders maintained that the vote was tantamount to a choice of whether or not to stay in the single currency.

After stunning fellow EU leaders last Saturday by calling the referendum, Tsipras delivered his last-minute bombshell by writing to Eurozone leaders demanding a new, separate two-year bailout hours before the current arrangements lapsed.

Tsipras called the president of the European commission, Jean-Claude Juncker, on Monday evening, to explore a possible last-minute way out of the crisis after the Greeks abandoned talks with the Eurozone late on Friday and called the referendum.

Tsipras was told he could accept the creditors’ slightly amended final offer from last Friday and that he would have to campaign for a yes vote in the referendum if he was serious about rescuing a bad situation. He has strongly recommended a no in the vote on Sunday.

“We see the referendum as part of the negotiation process, not in lieu of it. We look forward to greater flexibility in the days to come,” said Euclid Tsakalotos, Greece’s chief negotiator, as he listed several reasons why the terms from the so-called troika of the European commission, European Central Bank and IMF had to be spurned.

During a day of gambles, demands and standoffs , Tsipras’s aides remained in telephone contact with commission officials for most of Tuesday before the Greek leader delivered his final move.

He asked for bridging loans to get him through the IMF non-payment problem and for a new two-year programme covering almost €29bn in debt servicing costs as well as debt relief measures. There was nothing in his letter to Juncker, Klaus Regling, the head of the Eurozone's bailout fund, and Pierre Moscovici, the commissioner for monetary affairs, to indicate what his government was prepared to accept in return for a new deal.

Any such arrangement would come with tight strings attached. Tsipras has already rejected the creditors’ terms. If he wins his no vote, the Germans and others believe he has burnt his boats and bid farewell to the euro. If he loses to a large yes vote, however, Eurozone leaders would be keen to strike a new deal but not with Tsipras, whom they do not trust to deliver.

A new rescue package would take time to negotiate with no guarantees of a successful conclusion. An agreement on more loans for Greece would need to pass through several Eurozone parliaments, including the Bundestag in Berlin where it would get a rough ride.

Juncker earlier told Tsipras that a last-minute deal was possible if Athens agreed to sign up to the creditors’ proposals presented last Friday. The commission president also dangled the prospects of debt relief for Greece and a €35bn “new start for jobs and growth” programme.

That appeared to be old wine in new bottles. The €35bn is unlikely to be new money while the debt relief suggestion is the revival of a conditional offer to the previous Greek government from 2012.

In the past five months, Tsipras has persistently blocked agreement on the current bailout which would have released €7.2bn in return for meeting fiscal targets, spending cuts, and tax rises. He has aimed to get the current programme dropped and wrapped into a new one involving debt relief.

Since the weekend Eurozone leaders desperate to avoid the blame for the departure of the first country from the currency have been declaring that the door remains open to more talks. Tsipras’s gambit on Tuesday tested the credibility of that pledge. But it appeared that it came too late.