Europe’s latest attempt to broker a deal with Greece failed late Wednesday amid growing acrimony between Athens and its creditors ahead of a deadline next Tuesday that could see a Greek default and a possible ejection from the eurozone.
Finance ministers from the 19-member Eurogroup gathered in Brussels for the second time this week to hash out the details of an accord, but adjourned after less than two hours, dashing hopes that a deal was within grasp.
“We have not reached agreement yet,” Eurogroup chief Jeroen Dijsselbloem said on his way out. “But we are determined to continue our work towards doing what is necessary.”
German Finance Minister Wolfgang Schäuble was more blunt, saying that he was “not optimistic.”
European Commission President Jean-Claude Juncker responded by calling the heads of the International Monetary Fund, the Eurogroup, European Central Bank and Greek Prime Minister Alexis Tsipras to his Brussels office just before midnight Wednesday.
European Union leaders hoped to sign off on a deal at their summit on Thursday but that goal was now in doubt. The finance ministers agreed to meet again on Thursday at 1 p.m.
Time is running out for an agreement that would disburse €7.2 billion in bailout funds. Without that cash injection, Athens is unlikely to be able to repay the IMF €1.6 billion due at the end of June.
The end of the month also marks the expiry of Greece’s second rescue program, and without that support Greece may lose the backing of the ECB — all that is shoring up the Greek banking sector from collapse. A default to the IMF could set off a spiral of events leading to its exit from the common currency.
The talks appeared to gain new momentum on Monday after Greece submitted a fresh set of proposals that addressed many of the creditors’ demands. But the creditor group, which includes the International Monetary Fund, the European Central Bank and the European Commission, is itself divided on whether to make substantial concessions.
While the Commission welcomed the proposal and said it provided the basis for a deal this week, the IMF and the eurozone capitals have been more reserved.
The Greek proposal relies on raising taxes instead of spending cuts to meet fiscal goals, targeting savings of about €8 billion per year. The IMF and Germany worry that approach would further weigh on Greece’s moribund economy, which has fallen back into recession after showing signs of life last year.
The creditors’ own proposal, which they sent to Greece earlier this month, focuses on deeper cuts to pensions and other government spending.
Creditors suggested a series of revisions to the Greek proposals on Wednesday, including pension cuts that would slash about €11 billion from the budget. Some ideas like cutting the Greek defense budget by €200 million were doubled to a politically unpalatable €400 million, while other suggestions such as one-off tax of 12 percent on coporate profits larger than €500,000 were scrapped entirely.
The creditor response — drafted in red that crossed out many Greek ideas, and even tweaked the grammar and punctuation of the original — provoked an angry reply from Athens.
“This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed,” Tsipras said in Athens before boarding a plane to Brussels.
Tsipras’s remarks reflect a growing suspicion in Athens that some European capitals would welcome the collapse of his government and new elections.
“Why on earth ask for tax-driven austerity when the creditors themselves are not confident that it’s doable?” said Nicholas Spiro of Spiro Sovereign Strategy, an advisory firm.
Tsipras’s dark hints about the creditors’ motives underscore the growing pressure faced by the Greek leader.
He has been threatened by a backlash within his leftist Syriza movement in recent days for ceding too much ground in the talks. The party came to power earlier this year on a promise to end the hated austerity programs agreed to by previous Greek government which it blamed for impoverishing ordinary Greeks and throttling the economy.
A number of Syriza MP’s have already vowed to oppose the measures, suggesting that even if Tsipras can strike a deal with Europe, he might have to rely on the opposition to get it through his own parliament.
Even if he succeeds, the Greek leader might have to call new elections.