Opinion
Jul 8 2015 at 9:06 AM
Updated Jul 8 2015 at 9:56 AM
Greece debt crisis: time running out for Alexis Tsipras
by Karen Maley
Greek Prime Minister Alexis Tsipras appears determined to test the limits of creditors' patience after his newly appointed Finance Minister Euclid Tsakalotos, who took over from Yanis Varoufakis on Monday, arrived at his first meeting with eurozone finance ministers without a detailed proposal.
Instead, Athens is now expected to submit a proposal for a short-term financing fix that will cover the country's needs until the end of the month, giving Greece and its creditors – the European Commission, the European Central Bank and the International Monetary Fund – time to reach a longer-term financing agreement.
In a press conference after the summit of European leaders overnight, German Chancellor Angela Merkel conceded that "a short-term loan may be granted to Greece" provided that the country comes up with an acceptable and detailed reform program. All the same, she ruled out any haircut on the country's debt.
She also put Tsipras on notice that Greece still needed to make longer-term proposals on the reforms it would implement in exchange for fresh financial assistance before there could be a discussion on the country's short-term financing needs.
A Greek flag flies behind a statue depicting the European unity outside the European Parliament. Photo: Reuters
Tsipras, however, was more upbeat. After meeting with European leaders he said he was "positive", adding that the goal now was "to conclude the process by the end of the week, at the latest".
He added that "the Greek proposals include credible reforms in order to obtain appropriate financing".
'Serious proposals'
After a resounding victory at Sunday's referendum, the Tsipras government had signalled that Greece would come up with "new proposals" in order to reach an agreement with the country's creditors that would keep the debt-laden country within the euro zone. This announcement had raised hopes that a deal could be in sight at last night's meeting.
Alesix Tsipras has been put on notice that Greece still needed to make longer-term proposals on the reforms it would implement in exchange for fresh financial assistance Yves Herman
In a presentation by Merkel, French President Francois Hollande and European Commission head, Jean-Claude Juncker, ahead of the broader summit, Tsipras outlined of the reforms that Athens would implement in exchange for fresh financial assistance.
These reportedly represented a slightly modified version of reforms previously rejected by Athens.
After the meeting, Hollande insisted that Greece "must make serious proposals". Merkel was even more dismissive of Greece's efforts. "There is still no basis for negotiations," she noted, adding the warning, "I say it's not a matter of weeks but of a few days."
Juncker also adopted a hardline approach, warning during a press conference overnight that detailed preparations had been made for a 'Grexit' – an organised departure of Greece from the eurozone.
Greece now faces a deadline on Friday morning to present a detailed reform and financing proposal – which is tantamount to a third bailout for the embattled country.
If the eurozone believes that Athens' reforms are sufficient, the country is likely to receive a short-term loan in order to reopen its banks (which have been closed for more than a week), while negotiations for a longer-term financing are held.
If, however, Athens' package is rejected, plans will be put in place for a Grexit.
A new summit of European leaders is now scheduled for Sunday to evaluate Greece's proposals.
A major stumbling block could be Greece's debt burden, which stands at a massive 180 per cent of the country's gross domestic product (GDP). Last week, Tsipras was pushing for a 30 per cent write-down on the country's debt, which Berlin has consistently rejected, and Merkel again ruled out overnight. However, Greece's creditors might be prepared to reduce the country's pain by extending maturity dates and cutting interest rates on the debt even further.
At an earlier meeting, eurozone finance ministers were also disappointed that although Greece has a new finance minister – with the more pragmatic Tsakalotos stepping into the role formally played by the abrasive Varoufakis – the country failed to come up with new proposals to discuss.
Instead, Tsakalotos presented a modified version of Greece's previous proposal, which consists of some reforms, a program to boost investment in the country and a restructuring of the country's debt.
ECB deadline
Athens has less than two weeks to reach a deal that will allow it to meet a €3.5 ($5.2) billion debt repayment due to the ECB. If the country defaults, it would be extremely difficult for the ECB to keep providing a lifeline to the Greek banks. If that support were withdrawn, most Greek banks would collapse, forcing the Greek government to print its own currency to recapitalise them.
Already, the ECB is uncomfortable that it has become the main source of liquidity for Greece's banks. On Monday, the ECB refused a request from Greece to raise the ceiling – which now stands at it €89 billion - on the amount of emergency funding that it provides and instead has tightened the screws on Greek lenders by requiring them to use more assets as security in exchange for emergency loans in future.
But France's Hollande promised that the ECB would not cut emergency funding for the Greek banks for now, as Athens had feared.
At a press conference after the meeting of European Leaders, Hollande said that the ECB would continue to provide minimal liquidity for Greece until Sunday.
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