Greece lurches closer to default as bailout talks go to wire

European officials resumed talks on Greece’s bailout on Thursday after a day of negotiations broke up in the early hours without ending the standoff that has brought the country on the cusp of a default.

With the Greek government saying it held firm in the flurry of meetings in Brussels on Wednesday, European Union officials said the talks yielded little progress and no breakthrough was in sight. Prime Minister Alexis Tsipras and the heads of the three creditor institutions agreed to reconvene first thing on Thursday after a few hours’ sleep. Technical experts were meeting in Brussels Thursday morning to prepare the ground for the fresh talks, with sticking points ranging from pensions and sales tax increases to debt relief.

The race for a deal is accelerating as Greece moves nearer to the June 30 expiry of its euro-area bailout without any agreement in place ensuring it can meet a payment of 1.5 billion euros ($1.7 billion) to the International Monetary Fund that falls due the same day.

“It’s going to the wire,” Finland’s Alexander Stubb told reporters after a meeting of euro-area finance chiefs in Brussels broke. Ministers will resume at 1 p.m., by which time “we hope to have a concrete proposal,” he said. “It’s important to keep the process going.”

The new impasse caught investors off guard and stocks retreated around the globe amid concern the five-month Greek standoff will fester, with disagreement persisting over the conditions attached to a resumption of aid for Europe’s most indebted nation.

Equities and bonds surged earlier in the week after a new round of Greek proposals showed that Tsipras was finally starting to negotiate with his creditors. That changed yesterday when the creditors rejected elements of the Greek pitch, sparking incredulity from Tsipras, who is under increasing pressure from his own lawmakers not to give away too much.

The benchmark Athens Stock Exchange Index fell Wednesday for the first time in five days, dropping 1.8 percent. The index is up 13.6 percent this week.

Capital Controls

Still, Tsipras is taking an increasingly leading role in the talks and that was a good sign that a deal could be reached, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

“This was always going to be a tough negotiation that was going to require the direct participation of Prime Minister Tsipras, which is what we have right now in Brussels,” he said on Thursday in an interview with Bloomberg Television.

Failure to close a deal by the weekend would increase the chance that Greece would have to impose capital controls to prevent a run on its banks. Greeks have withdrawn about 20 percent of deposits held by the nation’s lenders this year as concern of an exit from the euro intensified.

“I think we’ll get a deal, the only question is whether or not the deal will come before or after capital controls are potentially imposed on Greece, which my prediction is that if there is no deal by late Sunday night, I strongly doubt the Greek banks will open up normally Monday morning,” Kirkegaard said.

Greek Pushback

On the eve of a two-day summit of fellow EU leaders that begins Thursday in Brussels, twin sessions of negotiations with Tsipras lasting some seven hours in total failed to bridge the differences with creditors.

Both sides agreed that technical teams will reconvene at 6 a.m. in Brussels, followed at 9 a.m. by the resumption of talks between Tsipras, IMF chief Christine Lagarde, European Central Bank President Mario Draghi and European Commission President Jean-Claude Juncker.

Even if a deal is reached, Tsipras may struggle to secure the needed endorsement of the Greek parliament as some of the more populist and radical members of his ruling Syriza party are threatening to vote against the compromise plan he offered creditors this week.

The German parliament’s lower house won’t cast its vote on a revised aid deal, until Greek lawmakers take the first step by passing economic policy changes. Germany could vote Monday or Tuesday, provided Greece approves the plan first, a German parliament official said.