Creditors draw up emergency measures in case of Greek default

From the Guardian) — Eurozone finance ministers and Greece’s creditors are to draw up emergency measures on Saturday to cope with a default by the debt-ridden country unless the Greek prime minister, Alexis Tsipras, accepts the creditors’ terms for a five-month extension of Athens’ bailout.

Greece has its last chance to surrender to the lenders’ terms following five months of stalemate at a meeting of eurozone finance ministers in Brussels on Saturday afternoon, the fifth such session in 10 days.

Expecting a financial implosion and social unrest in the event of the negotiations collapsing, the ministers are scheduled to draw up plans on Saturday that could involve Greece imposing capital controls, including curbs on ATM withdrawals, to stem a flood of funds out of the ailing Greek financial system.

The creditors have prepared a new funding offer, providing a lifeline to keep Greece afloat until the end of November by extending the bailout by five months and supplying €15.5bn in loans tied to budget cuts and tax rises, increasing the debt burden that Greece will not be able to repay.

As a two-day EU leaders’ summit ended in Brussels on Friday, several senior officials said Tsipras had to make a choice between accepting the creditors’ ultimatum or embarking on a road that could take Greece out of the euro. Angela Merkel, the German chancellor, who talked privately with the Greek leader in Brussels on Friday morning, urged him to go the “extra step” and accept an offer that Tsipras could not refuse, what she described as “a very generous offer”.

She ruled out any more emergency summits on the Greek crisis and delivered a pointed message to Tsipras by stressing how, during the Cyprus bailout two years ago, Cypriot banks had to be closed “for a few days”, forcing the political leaders to come to Brussels to deal with the creditor institutions and the Eurogroup finance ministers in order to resolve the issue.

The ECB is keeping Greek banks on life support by providing €89bn worth of emergency funding, which is being topped up to keep pace with deposit withdrawals that hit more than €4bn last week alone.

The rejectionist hard line from Greece resounded loudly in Brussels on Friday as Tsipras flew home to a weekend of volatile and probably uproarious politics. In public, he sounded the note of no compromise.

“The European Union founding principles were democracy, solidarity, equality and mutual respect. It was not based on blackmail and ultimatums. No one has the right to put in danger these principles,” he declared.

The Greek labour minister, Panos Skourletis, said: “We have moved from a take-it-or-leave-it scenario to the proposal of a five-month extension that makes no sense.” Tsipras called an emergency cabinet meeting in Athens on Friday evening.

Sources said there was now little in fiscal and budgetary terms dividing both sides and that the problem was more political than financial.

“The differences are very slight,” said another official.

Tsipras has consistently maintained that the dispute is about politics more than money and can only be settled at the highest political levels. This has failed in two EU summits this week. He now faces the political choice of buckling or defying the creditors.

The two-page paper on extending the bailout includes a footnote referring to the issue of debt sustainability, allowing the interpretation that the eurozone could eventually accede to a form of debt relief for Greece, which is Tsipras’s primary demand.

But any debt restructuring or rescheduling action would come with strings attached and would be the subject of later tough negotiations. The deal that may or may not be struck on Saturday would therefore buy time for both sides without tackling core issues.

On Friday evening, EU officials said Tsipras had about 20 hours to make up his mind. If he capitulates, he would need to rush budget legislation through the Greek parliament on Sunday to allow the German parliament to endorse the package on Monday before it expires on Tuesday. “Otherwise he won’t get the extension,” said an official.

Teams of financial negotiators are to meet in Brussels on Saturday morning before the finance ministers’ meeting.