Greek Prime Minister Alexis Tsipras is set to meet German Chancellor Angela Merkel for the second time in five days on Monday, at the start of a week that may prove decisive for Greece’s future in the euro area.
The meeting in Berlin with the leader of the biggest contributor to Greece’s stalled 240 billion-euro ($259 billion) bailout is a precursor to make-or-break decisions Tsipras faces as his country’s financial predicament becomes ever more perilous. His government needs to spell out economic measures it plans to undertake as early as this week to unlock long-withheld aid payments that will keep the country afloat.
“I hope there’ll be a U-turn on policies in Athens, but I maintain my view that if not, the Greek economy will collapse and they’ll slip out of the eurozone into chaos,” said Erik Nielsen, global chief economist at UniCredit AG. “The Greek government ought to recognize that this is ‘endgame stuff.’’
Locked out of capital markets and with its coffers running dry, Greece is scraping the bottom of the barrel to pay pensions and salaries amid signs that it could run out of money by early next month. European leaders, including Merkel, French President Francois Hollande and European Central Bank President Mario Draghi pressed Tsipras at a March 19 meeting in Brussels to make good on a February accord and ‘‘present a full list of specific reforms’’ in the coming days before any further aid can be disbursed.
As Tsipras prepared for the meeting in Brussels, he wrote to Merkel that it will be ‘‘impossible’’ to service imminent debt obligations without short-term financial aid, the Financial Times reported Sunday, citing a March 15 letter seen by the newspaper.
The Greek leader’s first official visit to Berlin since a Jan. 25 ballot catapulted his anti-austerity SYRIZA party to power, will focus on improving bilateral relations, the forty- year-old leader said in a statement published Sunday in the Greek daily Kathimerini.
The meeting gives both leaders a chance to tone down emotions flaring in both countries, including barbs by German politicians against Greek Finance Minister Yanis Varoufakis and calls in Greece to reopen talks on reparations for the Nazi occupation during World War II.
Tsipras’s ‘‘visit to Germany serves the purpose of getting to know each other bilaterally,” Merkel said Friday after Tsipras and his 27 fellow European Union leaders met in Brussels. “I’ve written down a couple of points and will focus on those things that, from the German perspective, need to be said.”
A Greek government official said the terms attached to the country’s stalled bailout aren’t part of the official agenda of the talks scheduled Monday afternoon in the German Chancellery, and the working dinner which will follow. The talks “will not take place under the pressure of negotiations” Tsipras said in his statement at Kathimerini.
Merkel, who witnessed the uncontrolled collapse of communism in East Germany 25 years ago, says her “political goal” is to keep the euro area intact. She urged Tsipras on Friday to do his part, saying she won’t negotiate with him on her own.
Tsipras said the government will present its proposals for unlocking the next aid payment as soon as possible. Although no specific deadline has been set, euro area finance ministers could discuss an aid payment at an emergency meeting as early as March 27 if Greece delivers an adequate list of measures by then, an EU official said last week.
Greece’s SYRIZA-led coalition has rejected the terms attached to the country’s bailout, saying that these have exacerbated the steepest and longest postwar recession in the Mediterranean country. Its creditors have signaled willingness to accept some flexibility in the fiscal targets envisaged in the bailout agreement, provided that the country delivers on structural economic overhauls, including privatizations, and tax and pension reform.
Failure to agree on the overhauls so far has severed the Greek state’s only financing lifeline, triggering a liquidity squeeze which could lead to a default within weeks. Payments for end-March salaries and pensions this week are going to be a challenge for emptying Greek state coffers, an official representing the country’s creditors said. The official asked not to be identified, as he was not authorized to speak publicly on the matter.
The standoff has also triggered a run on Greek banks, amid concerns over the country’s place in the euro area. The monthly drop in deposits in January was the steepest recorded in at least 20 years, and the bleeding has since continued. Net withdrawals on Friday were about 450 million euros, on top of 1.1 billion euros which had fled Greek banks in the previous three days, a person familiar with the matter said, asking to to be named, as daily outflow data isn’t public.
Greek banks cover their cash shortfall through an Emergency Liquidity Assistance lifeline, subject to weekly review by the ECB. Last week, the ECB raised the maximum ELA ceiling by just 400 million euros, less than half of what the Greek central bank had requested, to 69.8 billion euros. The ceiling will be reviewed again this week.
“Taking together the resumption of bank deposit outflows, disappointing public finance data and the minimal progress of negotiations, we highlight an increasing risk that payment controls may be implemented soon,” Barclays economists Francois Cabau and Thomas Harjes wrote in a note to clients on March 20.
The prospect of capital controls, or an eventual exit of Greece from the euro, has loomed larger in recent weeks as tensions between Greece and Germany threatened to derail bailout talks. In the past month, the two nations have been locked in a war of words, escalating with the Greek government officially complaining about German finance minister Wolfgang Schaeuble’s conduct and a German broadcast showing Varoufakis raising his middle finger while speaking about Germany in a two-year old video.
Schaeuble, in response to repeated questions from an Austrian television interviewer, said on March 12 he couldn’t rule out that Greece might exit the euro, while recent polls showed a majority of Germans want Greece to leave the currency union. Merkel has sought to avoid engaging speculation that Greece may tumble out of the currency union.
“I haven’t entered into this debate and I will not do so now,” Merkel said Friday. “Everything we do is aimed at pointing the way toward to keeping Greece as part of the euro, as we have done successfully in recent years.” [Bloomberg]