The leaders of Germany and France offered to release billions in frozen aid on Friday in a last-minute push to talk Greek Prime Minister Alexis Tsipras into contentious pension reforms in exchange for filling Athens’ empty coffers until November.
The leftist premier’s response, according to a Greek official, was that he could not understand why his country’s creditors were seeking to impose such harsh conditions in return for money to avert imminent default and damage to the euro zone.
Chancellor Angela Merkel and President Francois Hollande, whose countries are Athens’ two biggest lenders, held a 45-minute private meeting with Tsipras before the final session of a European Union summit at which they went through details of immediate funding for Greece if it would sign the deal.
The creditors laid out terms in a document that went to Greece on Thursday and was seen by Reuters on Friday. It said Greece could have 15.5 billion euros in EU and IMF funding in four installments to see it through to the end of November, including 1.8 billion euros by Tuesday as soon as the Athens parliament approved the plan.
The total is slightly more than Greece needs to service its debts over the next six months but contains no new money.
A French source said Merkel and Hollande discussed outstanding differences on reforms Greece needs to accept – centered on pension reform, labor law and increasing value added tax – as well as an extension to Athens’ bailout program and financing.
Merkel and Hollande both said that Saturday’s emergency meeting of euro zone finance ministers would be decisive to seal a deal before Greece has to make a key IMF repayment for which the government has said it lacks the money.
“Saturday’s meeting is crucial because we are on the eve of a date, June 30, when the Greek authorities have to meet a payment obligation,” Hollande told a news conference. “It’s also crucial because there are parliaments that have to meet if there’s a deal.”
The Eurogroup ministers will meet at 5 p.m. (1500 GMT) on Saturday and Greece will be asked whether it accepts a revised offer from the European Commission, the European Central Bank and the International Monetary Fund, a euro zone official said.
If Greece refuses, the ministers will move on to discussing a “Plan B” on preparing to limit the damage from a Greek default to Greek banks and other euro zone countries and markets, the official said.
However, Merkel and Hollande have refused to talk publicly about a “Plan B”, saying their efforts are focused on getting an agreement to keep Greece in the euro zone.
In public, Berlin kept up the pressure on Athens to yield, saying it was up to the Greek government to move.
Officials said that talks to reconcile the creditors’ and Greek positions were continuing behind the scenes, even though Greece continues to denounce the lenders’ proposals.
Greek Finance Minister Yanis Varoufakis had another blast at the creditors’ approach in an interview with Irish radio on Friday, saying their demands for tax increases and pension cuts as conditions for disbursing aid were putting Greece in an impossible position.
“I am against increasing the corporate tax, but then again I am against raising the tax on hotels and against cutting the pensions of people who live below the poverty line,” Varoufakis said on Irish national radio RTE.
“These issues are putting me and my government in an impossible position, having to make a bad choice among really hard, difficult bad choices.”
But he did not rule out accepting the terms.
Dramatizing the choice facing Athens, Germany’s member of the European Commission, Guenter Oettinger, said Greece had five days left to avoid an exit from the euro zone.
Euro zone finance ministers are divided over whether a default would necessarily lead to Athens leaving the 19-nation single currency area, which would undermine the principle that membership is irrevocable.
Failure to pay the 1.6 billion IMF euro installment on Tuesday could trigger a bank run, capital controls to curb deposit flight and possibly the issuance of IOUs or a parallel currency.
China, a growing economic partner of the EU, offered a vote of confidence in the euro zone on Friday ahead of Premier Li Keqiang’s visit to Europe next week, saying it was sure Greece’s talks with creditors would go positively.
Confidential documents drawn up by Greece’s creditors and seen by Reuters showed that the country’s debt would remain sustainable, even under a worst-case scenario envisaged by the IMF, if the maturities on euro zone loans were extended and interest rates were cut, without the need for a write-down.
The calculations are regarded as crucial to persuade German lawmakers to agree to the aid disbursement.
They showed that in the most severe case, Greek debt would require substantial “reprofiling” and improved lending terms but no “haircut” nor budgetary costs for the lenders.
Tsipras and Varoufakis have insisted so far that a commitment to debt relief is essential for Greece to accept any deal, while Germany and its allies had refused up to now to discuss the issue until Athens enacts and implements the reform program to complete its current bailout.
The fact that Hollande and Merkel discussed financing issues with Tsipras on Friday may indicate a new willingness to address the issue as part of a deal.