Saturday, June 27, 2015

EU Ministers Refuse Bailout Extension for Greece as Referendum Looms
Ian Traynor in Brussels
Saturday 27 June 2015 20.22 EDT

Europe’s single currency entered the stage of rupture for the first time in its 16-year life on Saturday night when 18 governments told Greece its bailout package would be terminated within days. The country plunged towards financial collapse after its leftwing prime minister, Alexis Tsipras, abandoned negotiations and called a referendum on his lenders’ terms for continuing the lifeline.

An emergency meeting of eurozone finance ministers took place in Brussels on Saturday evening without Greece for the first time since the crisis began in 2010. It turned into a crisis planning session devoted to quarantining Greece and insulating the rest of the eurozone from the impact of anticipated financial mayhem.

The weekend’s events threw Europe into weeks of confusion and turbulence as 10 days of intense last-ditch attempts to salvage an agreement between Greece and its creditors collapsed. Tsipras accused the country’s creditors of a vengeful act of humiliation against Greece and urged voters to follow him in rejecting the terms imposing more austerity in return for cash in the plebiscite on 5 July. Early on Sunday morning, the parliament in Athens voted in favour of holding the referendum.

The finance ministers refused to extend Greece’s bailout beyond Tuesday, hastening the likelihood of Greece’s ejection from the euro. Yanis Varoufakis, the Greek finance minister, refused to endorse the collective statement and left the meeting.

Tsipras’s gamble, following an EU summit in Brussels on Friday, leaves Europe’s leaders, notably Angela Merkel of Germany and Mario Draghi, the president of the European Central Bank, with a stark dilemma – whether to let Greece sink or swim.

It was unclear whether the expiry of the bailout on Tuesday also meant that emergency financial assistance which is keeping Greece afloat would continue. The governing board of the European Central Bank will have to decide this.

Without a bailout in place, it will be difficult for Draghi to continue supplying Greece with billions in liquidity assistance, funds that are currently keeping the country from default.

Over the next 48 hours Draghi faces the biggest decision he has ever had to take. The powerful central banker who pledged in 2012 to do whatever it takes to save the euro has to decide whether he will and can save Greece, or at least keep it alive until after the popular vote.

Draghi’s and Merkel’s decisions will have grave consequences for Greece which is staring into the abyss of defaulting on its colossal debts and being ejected from the euro, but will also have major impact on the single currency’s health and stability. “We’re going into totally uncharted waters,” said Michael Noonan, the Irish finance minister.

Saturday night’s eurogroup meeting said the governments “stand ready to do whatever is necessary to ensure financial stability of the euro area”. Their meeting was the fifth to be held in 10 days. The decision to end the bailout, shunning the Greek requests to extend the rescue until after the national referendum, means that Greece is likely to go bust.

“Greece ended the negotiations unilaterally. There is no basis for further negotiations,” said Wolfgang Schäuble, the hawkish German finance minister. “I don’t see any possibility for doing anything. On Tuesday the programme ends.”

 Greece has ‘closed the door’ on future talks, says Eurogroup president.

Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting in Brussels, said with his referendum decision Tsipras had “closed the door” for talks with the creditors.

The ECB has been providing life support to Greece for months by supplying billions in liquidity to the Greek banks. If Draghi pulls the plug, he could be held responsible for potential riots on the streets of Athens and national unrest. If he keeps the funding channels open, he will be accused of acting illegally and overstepping his mandate by financing a eurozone government.

Dijsselbloem declined to say whether so-called emergency liquidity assistance could continue without a bailout programme in place. The ECB’s governing council would need to take that decision.

Alex Stubb, the Finnish finance minister, said a large majority on the committee of finance ministers was against extending the Greek rescue beyond Tuesday. The ministers were surprised by the referendum decision and voiced feelings of betrayal by Tsipras. In the marathon negotiations of the past 10 days, some of them complained, the Greek officials and ministers had not told them of the referendum plan. Whether capital controls would be imposed was up to the Greek authorities, said Stubb: “This is a choice the Greek government has made. I’m quite sad about it.”

The impact of a Greek collapse will have a deep political and economic impact on the rest of Europe, causing recriminations over the conduct of five years of austerity and bailouts which, in the Greek case at least, have failed. “This is about our destiny,” said Peter Kažimír, the Slovak minister.

Greece owes €320bn, most of it to eurozone governments, and a full default will prove very expensive for the others, not least Germany which has €92bn at stake.

As the Greek parliament prepared to vote on staging the country’s first referendum in 40 years, Greeks raided ATMs and hoarded euros at home anticipating bank closures, the imposition of capital controls, and the blocking of savings accounts. Such actions appear inevitable if Draghi cuts off funds to Greece.

On Friday Tsipras robustly rejected the creditors’ terms for extending the bailout until the end of November, bitterly accusing the Europeans and the International Monetary Fund of deliberately seeking to humiliate Greece. On Saturday he refused to back down. He spoke by phone to Merkel and the French president, François Hollande, insisting that his referendum would happen. “It will take place regardless of the eurogroup decision,” he was reported to have told Merkel and Hollande.

Athens also has to repay €1.6bn to the IMF on Tuesday. Without a rescue package in place, it is not clear where the money is coming from.

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