By Mehreen Khan, Matthew Holehouse, Brussels 07 July 2015
Creditor powers ready plans to deal with humanitarian crisis and a banking collapse in Greece as agreement remains perilously out of reach
Pedestrians stop to read the newspaper front pages reporting the outcome of the Greek referendum outside a kiosk in Athens, Greece, on Monday, July 6 Photo: Chris Ratcliffe / Bloomberg
The European Union faces "the most critical" moment in its 64-year history, after leaders warned they had five days to prevent Greece from careering out of the euro and into a full blown humanitarian crisis.
"Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system", said Donald Tusk, head of the European Council, after talks between Greece and its partners ended without agreement on Tuesday night.
Brussels has now convened a full emergency summit of all 28 European leaders on Sunday to thrash out an deal to keep Greece in the single currency.
"I have no doubt that this is the most critical moment in the history of the European Union," said Mr Tusk.
He dismissed any notion that letting Greece leave the euro would not have irreparable geopolitical consequences for the continent.
"If someone has any illusion that it will not be so, they are naive."
European Commission president Jean-Claude Juncker, who has grown increasingly frustrated with the Greek government admitted: “We have a Grexit scenario, prepared in detail.”
The comments are the starkest warning that any political miscalculation from creditor powers will now result in Greece's ejection from the single currency. It would result in a fatal breach of the sanctity of monetary union only 15 years after the euro was introduced.
Without any fresh injection of emergency funds, Greece is set to default on a €4.2bn payment to the European Central Bank in 12 days time, putting it on the inexorable path of issuing an alternative currency and a chaotic Eurozone exit.
The cash-starved government has been forced to shut down its banks for more than a week, while ATM machines have run dry. Small businesses have begun issuing parallel scrip currencies to cope with the liquidity squeeze.
Talks between the two parties broke down after Athens' failed to provide creditor powers with any new proposals to secure a new bail-out deal at a meeting of finance ministers earlier in the day.
Creditors were openly exasperated after new finance minister Euclid Tsakalotos arrived empty-handed in Brussels following Greece’s momentous No vote against their lenders’ bail-out conditions.
Mr Tsakalotos, a St Paul's and Oxford educated economist, was photographed leaving a hotel in central Brussels with handwritten notes, reading: “No triumphalism” - an apparent reference to the Leftist government's desire not to openly celebrate its shock referendum victory at the weekend.
The radical Left Syriza government has already begun preparing alternative forms of liquidity such as IOUs to keep itself afloat - a measure which is deemed illegal under the treaties of the European Union.
Greek prime minister Alexis Tsipras will now submit a request for short term bridging funds and a new two-year rescue package from creditors on Wednesday. These will be discussed by creditors on Thursday before a last-minute attempt to reach a compromise at the weekend.
"The stark reality is that we have only five days left to find the ultimate agreement," said Mr Tusk.
"Until now, I have avoided talking about deadlines. But tonight I have to say loud and clear that the final deadline ends this week."
With Greece on the abyss of a disorderly exit, US president Barack Obama made his first personal intervention in the crisis talks for months on Tuesday night.
The US president spoke to Mr Tsipras and Ms Merkel before leaders gathered in Brussels.
He told the German Chancellor "it is in everyone’s interest to reach a durable agreement that will allow Greece to resume reforms, return to growth, and achieve debt sustainability within the Eurozone," said a White House statement.
Athens is looking to secure a firm commitment to write off some portion of the country’s €320bn debt mountain,
However, despite Washington's urgency, Ms Merkel last night dismissed debt relief plans as "out of the question".
Ilmars Rimsevics, an ECB governing board member and Latvia’s central bank chief, conceded the single currency was now openly preparing for a future without Greece.
“The Greek nation has been brave and has voted itself out of the Eurozone”, he said. “The overall effect is that we see that a state, which has not kept its promises, which has not done the necessary homework, might be out of the Eurozone one day. And it means that the Eurozone might become stronger.”
The hard Left government is also fast running out of time and patience among its last remaining allies.
Mr Tsipras could not “put a gun to our head or a knife at our throats", said Belgium's prime minister Charles Michel.
Italian prime minister Matteo Renzi said it was for the government to ultimately decide “whether they want to stay in euro or not”.
“In order to stay in euro, rules need to be followed,” said Mr Renzi, who has been considered as one of the Greeks' few backers.
“We have very little time,” said Jeroen Dijssebloem, head of the bloc’s finance ministers.