Greece faced intense pressure Thursday from its international creditors to break a deadlock in its bailout talks that has raised the specter of the country’s imminent bankruptcy and even its exit from the euro.
As finance ministers from the 19-country eurozone headed into a meeting along with the heads of the International Monetary Fund and the European Central Bank, optimism was in short supply. Greece was told it could not delay its debt repayment to the IMF on June 30 and that its creditors were looking at a plan B – code for a Greek exit from the euro.
Officials acknowledged that a so-called “Grexit” was now being discussed and that contingency plans were being made. As fears of a potential Grexit have swelled, there have been signs that Greeks are withdrawing money from their banks in ever-increasing amounts.
Jeroen Dijsselbloem, the eurozone’s top official, was pessimistic about the meeting and insisted Greece has to take “further steps” for there to be a lasting deal.
“It needs to hold up in the coming years to be credible,” he said.
With no one predicting a deal on Thursday, there’s speculation that the negotiations will be passed onto eurozone leaders over the next few days.
“I think it will be a preliminary discussion to a longer political discussion at the heads of state and government,” said Michael Noonan, Ireland’s finance minister.
Noonan, whose own country had to be bailed out in 2010 after a banking crisis, said he doubted there’d be any contagion effects from a Greek euro exit, but that the Irish government was leaving nothing to chance.
“We’ve had the conversations at a high level (in Ireland),” he said. “We’re watching the situation and we’re taking advice from the European Central Bank … The option is to prepare the B plan.”
Greece’s radical left-led government has been locked in discussions with international creditors since its election in January over what economic reforms and budget cuts it needs to make to get the remaining 7.2 billion euros ($8.2 billion) available in its bailout fund. It needs the money to pay upcoming debts – first and foremost 1.6 billion euros due to the IMF at the end of the month.
That payment to the IMF is not up for negotiation, the IMF’s managing director, Christine Lagarde, said.
“There is no period of grace of one or two months as I have read here and there,” she said. “It’s due on June 30.”
The Greek government wants an end to the budget austerity measures that have accompanied the country’s bailout loans for five years. It has also been seeking some sort of restructuring of the country’s sky-high debt burden, which stands at near 180 percent of annual GDP. That could take the form of lower interest rates on the debt or extending the date by which the debts have to be repaid.
Dijsselbloem said the eurozone remains by its 2012 commitment to “consider further measures and assistance” for Greece, but only if Greece enacts its reform promises.
Greek Finance Minister Yanis Varoufakis declined to specify whether he would present fresh proposals Thursday to break the impasse, but said he hoped his “ideas” would meet with favor.
“The purpose is to replace costly discord with effective consensus,” he said.
French Finance Minister Michel Sapin said the “differences can be overcome” and that “the differences are not as great as people say.”
The blame game over the impasse in Greece’s talks has gotten louder in recent days, with both sides claiming they’ve gone a long way to secure a deal. Greece has been adamant it won’t back any deal that cuts pensions while European officials say they’ve made compromises by, for example, easing Greece’s budget surplus targets.
The stalemate has become an increasing concern in financial markets as investors fret about the potential implications of a Greek exit from the euro.
Greece’s main stock index opened sharply lower, adding to big losses this week, but recovered over the day, buoyed by a broad rise in global markets. It closed up 0.4 percent. The Stoxx 50 index of leading European shares also recovered from losses to close 0.6 percent higher.
While the talks were ongoing in Luxembourg, Greek Prime Minister Alexis Tsipras was traveling to Russia to meet President Vladimir Putin – a visit that has prompted speculation Greece could be seeking Russian loans.
Russian declined to comment on the possibility.
In Berlin, German Chancellor Angela Merkel said it’s up to Greece’s leaders to show the will to reach a deal.
Germany’s efforts, she insisted, are directed to Greece “remaining in the eurozone” and said an agreement was “still possible.”
Since Greece was locked out of international bond markets in the spring of 2010, it has relied on bailout funds from its eurozone partners and the IMF. In return for the 240 billion euros in loans, the country has had to make deep spending cuts and tax increases as well as economic reforms.
Tsipras’ Syriza party was elected on a promise to end such austerity, which it blames for the calamitous state of the Greek economy. It economy has shrunk by a quarter since its financial crisis began, while unemployment and poverty have increased dramatically.
Geir Moulson in Berlin and Nataliya Vasilyeva in St. Petersburg, Russia, contributed to this report.