The Greek interior ministry has ordered governors and mayors to transfer all cash reserves to the central bank as bankruptcy closes in
By Ambrose Evans-Pritchard
11:55PM BST 11 Jun 2015
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IMF negotiators have left Greek talks citing 'major differences' with Athens Photo: GETTY IMAGES
The European Union has warned Greece in the clearest language to date that its patience is exhausted and the country will be abandoned to its fate unless it accepts creditor demands in short order.
Donald Tusk, the EU’s president, said the radical-Left Syriza government must stop spinning out the negotiations and face hard choices before Greece spirals irrevocably into default.
"There is no more time for gambling. The day is coming, I'm afraid, that someone says that the game is over," he said.
The blunt language came as the International Monetary Fund pulled its officials out of the talks, citing a failure to break the deadlock after four months of wrangling. “There are major differences between us in most key areas. There has been no progress in narrowing these differences,” it said.
Greek prime minister Alexis Tsipras failed to secure any substantive concessions during two days of stormy talks with key power-brokers in Brussels, including German Chancellor Angela Merkel and French president Francois Hollande.
Mrs Merkel tried to put the best gloss on events, insisting that Greece had agreed to work “full steam ahead” to break the impasse.
Yet her assurances belie the reality that Syriza and Europe’s creditor powers are no closer to a deal as bankruptcy looms. The Greek interior ministry has ordered regional governors and mayors to transfer all cash reserves to the central bank as an emergency measure.
The mounting worry is that the government may not be able to meet its bill for salaries and pensions this month. The economy is sliding deeper into recession and tax revenues are falling short.
Bizarrely, the Athens stock market soared 8.2pc in a wave of euphoria, swept by unsubstantiated rumours of a breakthrough that left Greek officials scratching their heads.
The Piraeus Bank and Eurobank both jumped 19pc, while yields on two-year Greek debt plummeted 135 basis points to 23.8pc.
Markets may have misjudged the political choreography of the talks in Brussels. It is understood that Mr Tsipras chose to acquiesce in what insiders deem to be a "negotiating charade" in order to show willingness and avoid blame at home if the showdown ends in rupture, and even in Greece’s ejection from the euro.
It does not mean that Athens has ditched its fundamental demand for debt restructuring, an end to austerity and a comprehensive solution that puts Greece on a viable economic path.
“They tell us that there will be plenty of money for the next year or two if we sign on the dotted line and accept the Memorandum,” said one official.
“The creditors are taking this to the wire because they think we are scared – and we are scared – but we cannot accept these terms because they solve nothing,” he said.
Syriza has proposed a debt swap that would let it borrow from the eurozone bail-out find (ESM) to repay €27bn of liabilities to the European Central Bank, a rotation from one creditor to another. This would have the effect of stretching maturities and averting a default to the ECB in July. The plan has so far been rejected out of hand by Brussels.
Jens Weidmann, chief of Germany’s Bundesbank, warned that time is running out as Greek depositors withdraw an estimated €2bn a week from local banks. “The risk of insolvency is increasing by the day,” he said.
Greek officials are afraid that the bank withdrawals could snowball out of control at any time, forcing the finance ministry to take drastic action.
The ECB has increased its emergency lifeline for Greek banks to €83bn to offset the deposit flight, becoming ever more exposed itself should Greece default. Mr Weidmann said contagion risks have diminished but “should not be underestimated”.
Greece has already become the first developed country in history to skip a payment to the IMF, invoking a procedure not used since the 1980s to bundle €1.6bn of payments at the end of the month.
The crisis is closing in on several fronts at once. The jobless rate has begun to climb again, jumping to 26.6pc in the first quarter.
Communist trade unions held a sit-in at the finance ministry to protest cuts on Thursday, holding banners reading: "We have bled enough, we have paid enough". Others protested outside the presidential palace.
Syriza has reached a potentially dangerous political juncture where it may start to lose core public consent. The latest polls show that growing numbers are losing faith in Mr Tsipras’s negotiating tactics, with 53.4pc saying they are dissatisfied.
Yet the creditors themselves are deeply split. Over the past 10 days Mrs Merkel has sidelined her irascible finance minister, Wolfgang Schauble, cutting him out of all key negotiations on Greece. “He can give interviews but he can’t take part in the talks,” said a senior figure from the Social Democrats (SPD).
Die Welt reports that Mrs Merkel is now working hand-in-glove with her coalition partner and the SPD leader, Sigmar Gabriel, who has long argued that it would be a geostrategic disaster and a shattering moral defeat for Europe if Greece were forced out of the euro.
Mr Schauble is the proponent of a “velvet divorce” for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.
What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)
Mrs Merkel appears to have concluded that “Grexit” is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy.
She has repeatedly stated that Greece must be kept in monetary union at all costs. Syriza insiders view her – paradoxically – as their greatest ally in the EMU power structure.
What nobody knows is whether even Mrs Merkel is powerful enough to defy hardliners in her own party and a chorus of voices in EMU capitals demanding that Greek feet are held to the fire - until they burn.
Yet her assurances belie the reality that Syriza and Europe’s creditor powers are no closer to a deal as bankruptcy looms. The Greek interior ministry has ordered regional governors and mayors to transfer all cash reserves to the central bank as an emergency measure.
The mounting worry is that the government may not be able to meet its bill for salaries and pensions this month. The economy is sliding deeper into recession and tax revenues are falling short.
Bizarrely, the Athens stock market soared 8.2pc in a wave of euphoria, swept by unsubstantiated rumours of a breakthrough that left Greek officials scratching their heads.
The Piraeus Bank and Eurobank both jumped 19pc, while yields on two-year Greek debt plummeted 135 basis points to 23.8pc.
Markets may have misjudged the political choreography of the talks in Brussels. It is understood that Mr Tsipras chose to acquiesce in what insiders deem to be a "negotiating charade" in order to show willingness and avoid blame at home if the showdown ends in rupture, and even in Greece’s ejection from the euro.
It does not mean that Athens has ditched its fundamental demand for debt restructuring, an end to austerity and a comprehensive solution that puts Greece on a viable economic path.
“They tell us that there will be plenty of money for the next year or two if we sign on the dotted line and accept the Memorandum,” said one official.
“The creditors are taking this to the wire because they think we are scared – and we are scared – but we cannot accept these terms because they solve nothing,” he said.
Syriza has proposed a debt swap that would let it borrow from the eurozone bail-out find (ESM) to repay €27bn of liabilities to the European Central Bank, a rotation from one creditor to another. This would have the effect of stretching maturities and averting a default to the ECB in July. The plan has so far been rejected out of hand by Brussels.
Jens Weidmann, chief of Germany’s Bundesbank, warned that time is running out as Greek depositors withdraw an estimated €2bn a week from local banks. “The risk of insolvency is increasing by the day,” he said.
Greek officials are afraid that the bank withdrawals could snowball out of control at any time, forcing the finance ministry to take drastic action.
The ECB has increased its emergency lifeline for Greek banks to €83bn to offset the deposit flight, becoming ever more exposed itself should Greece default. Mr Weidmann said contagion risks have diminished but “should not be underestimated”.
Greece has already become the first developed country in history to skip a payment to the IMF, invoking a procedure not used since the 1980s to bundle €1.6bn of payments at the end of the month.
The crisis is closing in on several fronts at once. The jobless rate has begun to climb again, jumping to 26.6pc in the first quarter.
Communist trade unions held a sit-in at the finance ministry to protest cuts on Thursday, holding banners reading: "We have bled enough, we have paid enough". Others protested outside the presidential palace.
Syriza has reached a potentially dangerous political juncture where it may start to lose core public consent. The latest polls show that growing numbers are losing faith in Mr Tsipras’s negotiating tactics, with 53.4pc saying they are dissatisfied.
Yet the creditors themselves are deeply split. Over the past 10 days Mrs Merkel has sidelined her irascible finance minister, Wolfgang Schauble, cutting him out of all key negotiations on Greece. “He can give interviews but he can’t take part in the talks,” said a senior figure from the Social Democrats (SPD).
Die Welt reports that Mrs Merkel is now working hand-in-glove with her coalition partner and the SPD leader, Sigmar Gabriel, who has long argued that it would be a geostrategic disaster and a shattering moral defeat for Europe if Greece were forced out of the euro.
Mr Schauble is the proponent of a “velvet divorce” for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.
What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)
Mrs Merkel appears to have concluded that “Grexit” is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy.
She has repeatedly stated that Greece must be kept in monetary union at all costs. Syriza insiders view her – paradoxically – as their greatest ally in the EMU power structure.
What nobody knows is whether even Mrs Merkel is powerful enough to defy hardliners in her own party and a chorus of voices in EMU capitals demanding that Greek feet are held to the fire - until they burn.
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