Euro zone finance ministers delivered a stark warning to Greece on Friday that its leftist government will get no more aid until it agrees a complete economic reform plan, as Athens lurches closer to bankruptcy.
After a tough morning of talks with Greek Finance Minister Yanis Varoufakis, the chairman of the Eurogroup of finance ministers, Jeroen Dijsselbloem, slammed the door on a request for early cash in return for partial reforms.
He also said a remaining 7.2 billion euros in frozen bailout funds would no longer be available after June, and Greece’s creditors would not talk about longer term funding and debt relief until Athens concluded a full interim agreement.
“A comprehensive and detailed list of reforms is needed,” Dijsselbloem told a news conference following a meeting in Riga. “A comprehensive deal is necessary before any disbursement can take place … We are all aware that time is running out.”
Greek Prime Minister Alexis Tsipras said after meeting German Chancellor Angela Merkel in Brussels on Thursday he hoped for an agreement by the end of this month.
But Dijsselbloem said finance ministers would review progress again only on May 11 – a day before Greece has to make a crucial and uncertain 750 million euro payment to the International Monetary Fund.
European Central Bank President Mario Draghi said the ECB would go on allowing emergency lending to Greek banks as long as they were assessed as solvent. But he cautioned that soaring Greek government bond yields were diminishing the value of the collateral that the banks present to get funds.
Facing a wave of deposit outflows, the banks are staying afloat with 75.4 billion euros in emergency liquidity assistance from the Greek central bank. But criticism of the lifeline is growing inside the ECB, central bank sources say, and it would be in doubt if Greece missed a payment to its creditors.
European Economics Commissioner Pierre Moscovici said despite some progress in recent days, international creditors were still nowhere near an agreement with Athens.
“Our message today is very clear: We need to accelerate, we need to accelerate from today … there is no other choice if we want to reach the goal that everyone shares, which is a stable, prosperous Greece anchored in the euro zone,” Moscovici said.
Varoufakis sought to play down the differences, saying ministers had agreed to speed up the negotiations, which have also been delayed by Greece’s insistence that EU/ECB/IMF teams avoid lengthy stays in Athens for fear of intensifying the popular backlash against the hated “troika.”
“We agreed that an agreement will be difficult but it will happen and it will happen quickly because that is the only option we have,” he told a separate news conference.
Before the tense meeting he had offered some concessions in an effort to secure new funding before Athens runs out of money, saying in a blog post he was open to some privatizations and to a commission to supervise tax collection that would be independent of the government.
But he rejected any more wage or pension cuts and said creditors must agree on a realistic target for the primary budget surplus before debt service.
“Our government is eager to rationalize the pension system (for example, by limiting early retirement), proceed with partial privatization of public assets, … create a fully independent tax commission,” Varoufakis said.
Greek officials say they are aiming for a primary surplus of 1.2 to 1.5 percent of gross domestic product this year, well below the goals of 3 percent in 2015 and 4.5 percent in 2016 set in Greece’s 2012 EU/IMF bailout program.
French Finance Minister Michel Sapin told Reuters there was room for maneuver on Greece’s primary surplus, “as long as it remains positive.”
Exactly when Greece’s cash reserves run out is unclear, but sources familiar with the matter said Athens would struggle to meet the IMF payment, and it was not certain to scrape together a targeted 2.5 billion euros from state entities’ idle cash.
Merkel appeared to send a signal of goodwill after her meeting with Tsipras on Thursday, telling reporters “everything must be undertaken to prevent” Athens running out of cash.
But the tone of finance ministers was harsher, in a clear effort to dramatize the stakes and force the novice Greek government to accept unpopular measures it had resisted such as pension and labor market reforms.
Negotiations have been largely fruitless since radical leftists won power in Athens in January on a promise to reverse austerity and renegotiate Greece’s 240-billion euro bailout package.
Reflecting the general mood, Slovak Finance Minister Peter Kazimir confessed to being “just a bit tired” of the Greek saga, and said the end of June was now the final date for a deal.
The impact of a potential Greek default is the biggest risk to the euro zone’s economic recovery after a long crisis from which the 19-nation currency area is finally emerging.
Unlike at the height of the euro zone crisis in 2011-12, economists believe the euro zone is far better placed to withstand any Greek default because the currency bloc has its own bailout fund, support from the European Central Bank and a banking union that can protect banks from crisis fallout.
“The risk of contagion exists, but it is much lower than it was before,” Standard & Poor’s Chief Economist Jean-Michel Six told Italian financial daily Il Sole 24 Ore.
The lack of progress is starting to hurt Tsipras’ popularity and that of his government. Varoufakis warned in his blog against pushing Greece too hard, saying the Greek people would not support more spending cuts after one of the deepest recessions in Europe since the 1950s.