European leaders and the head of the International Monetary Fund agreed to step up the intensity of talks over Greece’s fate after an extraordinary meeting in Berlin about ways to avert a default.
The top-level huddle lasted past midnight Tuesday morning at Germany’s government headquarters with Chancellor Angela Merkel, IMF chief Christine Lagarde, European Central Bank President Mario Draghi, French President Francois Hollande and European Commission President Jean-Claude Juncker in attendance. The goal was to hammer out an offer that Greece could consider in coming days, according to two people familiar with the plan.
After Merkel left, her office put out a statement saying the five leaders “agreed that work must now be continued with greater intensity” and that “they have been in closest contact in recent days and want to remain so in the coming days, both among themselves and naturally also with the Greek government.”
Efforts to end an impasse over funding have become urgent as the Mediterranean nation faces a debt repayment to the IMF on Friday. While Greece says it can make the payment, it’s the smallest of four totaling almost 1.6 billion euros ($1.78 billion) this month. The timing coincides with the expiration of a euro-region bailout by the end of June.
With talks dragging into their fifth month, deadlines have come and gone with meetings, calls and summits yielding little as disagreements over pensions and labor laws persisted.
“Even a mediocre agreement is much better than the alternative for Greece, which is bankruptcy,” said Nicholas Economides, professor of economics at New York University’s Stern School of Business. “Bankruptcy within the euro would be very difficult to manage and would require tremendous support from the ECB, which is unlikely.”
Technical negotiations on economic measures Greece must take were resuming and an agreement is closer, though not ready, a Greek government spokesman said on Monday. The aim is to release about 7 billion euros from its existing bailout before the debate begins over a new package.
Merkel was expected to be more involved as time runs out between this week and a meeting of euro-region finance ministers on June 18 in Luxembourg. According to an international official over the weekend, creditor institutions were working on a common proposal that would be presented to Greece in the next few days.
The joint position may be communicated to Greek Prime Minister Alexis Tsipras by European political leaders, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.
Tsipras held a call with Merkel and Hollande on Sunday, with a German government official calling it “constructive.” At the same time, Greece and its creditors traded accusations for the lack of progress in talks, a hallmark of recent months.
Tsipras wrote in French newspaper Le Monde that any intransigence wasn’t the fault of his four-month-old administration. He referred to “absurd proposals” being presented to his government by institutions.
A senior German lawmaker said on Monday it was up to Greece to adhere to reforms agreed to before Tsipras took power. Michael Fuchs, deputy parliamentary leader of Merkel’s Christian Democrat party, said Greece is to blame for the crisis and it’s unacceptable for the government to accuse the European Union. He spoke to Bloomberg Television.
Financial markets in Athens will open after shutting on Monday for the Orthodox Pentecost holiday.
The yield on Greek 10-year bonds rose to 11.49 percent in London, up from 11.25 percent on Friday. Last week, the yield moved between 10.95 percent and 11.98 percent as local reports of progress were contradicted by warnings from European officials that a default can’t be ruled out.
JPMorgan Chase & Co., which in April 2014 helped Greece return to international debt markets, recommended investors sell some longer-dated Greek government bonds. The U.S. bank said there was an increasing risk of caps on the amount of money people can withdraw from Greek banks.
After recommending buying Greece’s longer-dated bonds about the time Tsipras was elected in January, JPMorgan said investors should take 10 basis points of profit on a long position in the 3 percent Greek bond maturing in February 2042. A JPMorgan spokesman in London said the strategists are independent of the bankers involved in capital markets, who declined to comment.
“Although the central scenario is for Greece to reach a compromise before missed payments and/or capital controls, our conviction is not high enough to justify aggressive risk- taking,” Gianluca Salford and Aditya Chordia, rates strategists at JPMorgan in London, wrote in a note to clients.