Greece was told to stop fighting creditors’ demands and sign a deal that will avert a default as officials plan for a worsening of the crisis.
Diplomatic niceties evaporated in Brussels as European Union President Donald Tusk rebuked Greek Prime Minister Alexis Tsipras for dragging his feet on a debt agreement and the International Monetary Fund’s team walked out of negotiations.
At a meeting of euro-area government staffers late Thursday, Greece was given less than 24 hours to come up with firm proposals to end the impasse, two officials present said. Policy makers are now examining all scenarios if Greece refuses to compromise, including the possibility that the country could eventually leave the currency, said the officials.
“There is no more time for gambling,” Tusk told reporters in Brussels on Thursday. “The day is coming, I am afraid, that someone says the game is over.”
Standing on the brink of economic ruin, a reality check awaited Greece. The trio of lenders that hold the key to the country’s fate have run out of patience with what they see as delaying tactics and mixed messages of a leader elected to end an era of austerity.
“The ball is very much in Greece’s court,” IMF spokesman Gerry Rice told reporters in Washington. “There are major differences between us in most key areas. There has been no progress in narrowing these differences recently.”
Bild newspaper reported today that the German government is also contingency planning for a Greek default after a meeting on Tuesday between German Chancellor Angela Merkel, French President Francois Hollande and Tsipras failed to yield a breakthrough.
Greek banks fell as much as 8.1 percent in Athens, after surging on Thursday amid optimism that a deal might be within reach. Greek bank stocks have lost more than 50 percent since the previous government of Antonis Samaras began to unravel in December. The Athens Stock Exchange Index, which has lost 24 percent since then, dropped as much as 4.2 percent on Friday.
Battle lines were drawn on Thursday night at a working dinner of EU finance officials that set out the parameters of a likely showdown next week when their bosses meet in Luxembourg. At the meeting, the Greek representative was told his government had to come with a serious action plan that includes pension and tax reform, according to the two officials, who spoke on condition of anonymity because the talks were private.
“Things went downhill again yesterday evening,” Paris Mantzavras and George Grigoriou, analysts at Pantelakis Securities SA in Athens, said in a research note. “The prospect of the IMF leaving the negotiating table is particularly troubling for Berlin.”
Merkel, who is facing growing skepticism from her own party’s lawmakers about giving more money to Greece, has insisted on keeping the IMF involved in the bailout process to provide political cover at home and help ensure the rigor of Greece’s austerity program. With IMF officials despairing at Greece’s approach to the talks, the chancellor is also telling Tsipras it’s time to compromise.
“The willingness is there to cooperate with the three institutions,” Merkel said, referring to the European Commission, the IMF and the European Central Bank. “It’s now a matter of acting on that.”
Since coming to power in January, Tsipras’s government has frequently refused to meet with IMF officials, arguing that a deal should be brokered between politicians, according to a person familiar with the process. In a briefing last month to the IMF board, the fund’s European department director Poul Thomsen said that stance was impeding talks, the person said.
Merkel and Hollande met with Thomsen’s boss, Christine Lagarde, and ECB President Mario Draghi along with European Commission President Jean-Claude Juncker in Berlin on June 1 to thrash out a proposal for Greece. The plan was initially billed as a final offer though Juncker subsequently rowed back on that.
Greece put forward a counter-proposal that was dismissed as not credible by one official involved in the process.
“It’s important for the Greek government to not just communicate what they don’t want to do but to come up with alternative, credible proposals of what they want to do,” Commission Vice President Valdis Dombrovskis said in Madrid.