LUXEMBOURG — European Union leaders will hold an emergency summit on Greece next Monday following the failure of talks among eurozone finance ministers to find a way to avoid a Greek default and exit from the euro.
European Council President Donald Tusk made the announcement minutes after the Eurogroup ended its session without making progress.
“It is time to urgently discuss the situation of Greece at the highest political level,” Tusk said.
The Luxembourg meeting was one of the last chances to agree on economic reforms which would allow Greece to secure payment of a final €7.2 billion tranche of its second international bailout, under a program which is due to expire on June 30. The same day, it is liable for debt repayments to the International Monetary Fund of about €1.6 billion, which may be impossible without a fresh injection of cash.
In recent days Europe’s leaders have repeatedly said they have ceded as much ground in negotiations with Greece as they are willing to and that now it is up to Athens to close a deal.
But with dimming prospects of a deal before the end of the month, when Greece has to make important loan repayments, European leaders are already focusing on how to prevent contagion to other countries. Bond yields for other southern eurozone countries, including Italy and Portugal, have risen in recent days, a sign that investors are worried about the impact of a Greek default on the wider region.
To forestall a broader panic, leaders will discuss ways to ring-fence Greece, by isolating its banking system from the rest of the euro area and other measures. They are also likely to consider ways to bolster confidence in other periphery countries, such as Portugal, Spain and Italy.
The ECB can keep Greece’s banks afloat for a time, but many economists argue that once Greece defaults, Europe’s leaders will have to decide whether to let Greece go or make further concessions. Greece continues to demand debt relief, a step that would require creditors to forgo much of what they are owed by Athens. The IMF, which worries about the sustainability of Greece’s debt, supports debt relief but it has been ruled out Germany and other governments that would bear the brunt of the losses.
Greek Finance Minister Yanis Varoufakis told reporters in Luxembourg his government had already presented a proposal that could, if accepted, resolve the situation once and for all, adding, “In fiscal terms our discussions have brought us within half a percentage point of GDP of what the institutions are proposing.”
But one EU official at the meeting said Varoufakis had presented only spoken ideas, nothing written: “We still do not have a proposal. There was no substantial discussion to be honest.”
IMF chief Christine Lagarde was scathing about the lack of progress, telling reporters: “We can only arrive at a resolution if there is a dialogue and for now we are short on a dialogue. And we can only arrive at a dialogue with adults in the room.”
Nothing credible
Pierre Moscovici, who is in charge of economic and financial affairs at the European Commission, which represents Greece’s international creditors alongside the European Central Bank and IMF, said Athens had made what he called reasonable proposals but had not responded in kind.
“We’re waiting for credible counter proposals from the Greek government and they were not delivered today,” he said.
Many of the EU officials attending the talks urged Greece in sharp tones to accept proposals presented by the Commission on economic reforms that would secure the cash lifeline it needs to stay afloat. Eurogroup chairman Jeroen Dijsselbloem said time was running out fast, as some national parliaments would also have to approve any deal.
Athens and its creditors have been kicking back and forth responsibility for the breakdown in negotiations, which has created a growing climate of concern that no deal will be reached by the end of the month.
German Chancellor Angela Merkel pointed the finger at Greece in a speech to the Bundestag earlier Thursday.
Repeating her familiar adage that “where there’s a will, there’s a way,” she added: “If the political leaders in Greece show this will, an agreement with the three institutions is still possible. Greece’s own central bank issued its first warning Wednesday that failure to resolve the dispute could lead not only to default and a so-called “Grexit” from the single currency.
U.S. Federal Reserve chief Janet Yellen added to the general alarm, pointing up “the potential for disruptions that could affect the European economic outlook and global financial markets” if there is no deal.
But Germany’s central bank president, Jens Weidmann, was one of the few voices trying to play down the existential threat posed by a potential Greek exit from the currency area.“The continued existence of the euro is not tied to the development in Greece. But certain contagion effects cannot be ruled out because the character of monetary union would be altered by a ‘Grexit’,” the Bundesbank president told France’s Les Echos.
Greek Prime Minister Alexis Tsipras chose Thursday for a visit to St. Petersburg to meet Russian President Vladimir Putin, which will fuel speculation that Athens could seek Russian assistance in the absence of a deal with its international creditors.