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Germans See Dim Prospects For Reaching New Greece Bailout Deal

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Germans See Dim Prospects For Reaching New Greece Bailout Deal

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By Carol J. Williams and Amro Hassan, Los Angeles Times (TNS)

BERLIN — German Chancellor Angela Merkel flew off to Paris on Monday to consult with French President Francois Hollande a day after Greek voters rejected Merkel’s signature strategy for getting their heavily indebted country’s finances in order.

As leader of the eurozone’s largest and most prosperous country, Merkel has been the key architect of eurozone bailouts that have forced tough austerity measures on Greece in exchange for loans enabling it to remain part of the 19-nation common currency club.

Merkel has long said she wants to see Greece remain in the eurozone, but “not at any price.” And the Sunday vote by Greeks to reject their creditors’ formula for repayment of $270 billion in bailout loans sent that price skyrocketing.

The German chancellor is widely resented in Greece for her preference for imposing budget cuts on Athens rather than investing in job creation and growth. At the same time, her support for austerity is applauded by politicians across a wide spectrum in Germany and other prosperous eurozone states.

The result leaves Merkel confronted with competing pressures: Holding the Greeks’ feet to the fire means risking the first failure of the European Union’s common currency experiment, marring her tenure as its de facto leader.

During five years of imposed austerity, the Greek economy has contracted by 25 percent and more than a quarter of the working-age population is unemployed. Grinding poverty and an eroding social safety net induced voters to reject their creditors’ demands for more belt-tightening with a 61 percent “no” vote in Sunday’s referendum.

Greek Prime Minister Alexis Tsipras, whose leftist government had urged voters to say no to more austerity, spoke with Merkel by telephone Monday and said he would bring new proposals to an emergency meeting of the eurozone finance ministers in Brussels on Tuesday, a Greek government official told reporters in Athens.

But with both voters and the government having spurned what was presented as a final offer by the European Central Bank, the International Monetary Fund and the European Commission — the major creditors _ there was nothing left on the table to talk about, in the opinion of many influential European leaders.

Merkel made no public comment on the Greeks’ convincing “no” vote, but her spokesman, Steffen Seibert, told reporters at a Berlin news conference that she “takes notice” of the rejection and respects it as the will of the voters.

“However, in light of the decision by the Greek citizens, the conditions to start negotiations on a new aid program are not met yet,” Seibert said, adding that Berlin would “wait and see what the Greek government makes of it.”

Seibert said the German government was “stressing the principle that solidarity is inseparable from (a country’s) own efforts,” implying that the attempt by Athens to get a significant write-down on its debts was not in the offing.

Technically, the proposals put forward by the creditors nearly two weeks ago expired with the end of the previous bailout program on June 30. That was also the deadline for Athens to make a $1.8 billion payment on its loans from the IMF, a bill that still needs to be paid before talks can begin on a new bailout package.

Time is now ticking away on the next loan installment due July 20, a $3.9 billion payment owed the European Central Bank and one with far more dire and immediate consequences for Greece if it is missed than was the case with the IMF default.

Greek banks have been closed for more than a week since the European Central Bank froze emergency cash infusions to prevent their collapse after depositors, fearful of the coffers being emptied, began pulling out their savings.

Greek banks are reported to have only $555 million left in their vaults, or the equivalent of about $50 per person in the country of 11 million. With the banks shuttered, Greeks have been limited to daily withdrawals of about $66.

The European Central Bank has already pumped about $99 billion into Greek banks in recent weeks to prevent their collapse. The stewards of the European financial system were expected to wait for direction from the Eurogroup finance ministers after Tuesday night’s meeting on whether to resume the cash infusions to prevent what could be a destabilizing collapse of banking and the government’s inability to pay public sector salaries and pensions.

The eurozone supporters of holding Greece to its previous commitments exuded frustration and an approaching end to their patience after the referendum rejecting their terms for getting Greek finances in order and the country’s debts repaid.

While Merkel may be reluctant to see the integrity of the eurozone breached, her conservative colleagues in the grand coalition that governs Germany are of the view that the Greek “no” vote may well be a prelude to the country’s exit from the eurozone.

The referendum was a clear signal that Athens refuses to be beholden to its creditors, said Markus Ferber, who oversees euro policy for the Christian Social Union, the Bavarian sister party to Merkel’s Christian Democratic Union.

“The country and the government have knocked away the helping hand” of its eurozone colleagues, Ferber said. “The only chance for Greece now is to leave the euro.”
Opposition political forces in Germany also signaled their willingness to take no for an answer from the rebellious Greeks.

“Now Merkel and the others (of the European creditors) must organize a Grexit, with all the cushions and upheavals that will result as a consequence,” said Alexander Graf Lambsdorff of the Free Democratic Party, employing the shorthand for a Greek exit from the eurozone.

The Economist Intelligence Unit, an independent forecasting and advisory service of the Economist Group, put the chances of a Greek exit from the eurozone at 60 percent.

But there were also calls for making yet another stab at keeping the eurozone intact and finding a solution to the standoff with Greece.

“The basis of a dialogue is on the table, but it’s up to Greece to show us that it takes the dialogue seriously and that it knows it can stay in the euro, and that there are decisions to make,” French Finance Minister Michel Sapin said, urging eurozone colleagues to approach Tuesday’s gathering with an open mind.

(Special correspondent Hassan reported from Berlin and Times staff writer Williams from Los Angeles.)

(c)2015 Los Angeles Times. Distributed by Tribune Content Agency, LLC.

Photo: Journalists wait for a statement from Greece’s Prime Minister Alexis Tsipras on July 6, 2015 in front of Presidential palace in central Athens, Greece. Greece’s finance minister has resigned following Sunday’s referendum in which the majority of voters said “no” to more austerity measures in exchange for another financial bailout. (Kay Nietfeld/DPA/Abaca Press/TNS)

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