Eurozone struggles to find joint response to Greek referendum

Germany and France scrambled to avoid a major split over Greece on Monday evening as the eurozone delivered a damning verdict on Alexis Tsipras’s landslide referendum victory on Sunday and Angela Merkel demanded that the Greek prime minister put down new proposals to break the deadlock.

As concerns mount that Greek banks will run out of cash and about the damage being inflicted on the country’s economy, hopes for a breakthrough faded. EU leaders voiced despair and descended into recrimination over how to respond to Sunday’s overwhelming rejection of eurozone austerity terms as the price for keeping Greece in the currency.

Tsipras, meanwhile, moved to insure himself against purported eurozone plots to topple him and force regime change by engineering a national consensus of the country’s five mainstream parties behind his negotiating strategy, focused on securing debt relief. Tsipras also sacrificed his controversial finance minister Yanis Varoufakis, in what was seen as a conciliatory signal towards Greece’s creditors.

In Paris, Chancellor Angela Merkel and President François Hollande tried to plot a common strategy after Greeks returned a resounding no to five years of eurozone-scripted austerity. The two leaders were trying to find a joint approach to the growing crisis ahead of an emergency eurozone summit on Tuesday to deal with the fallout.

But Merkel said there was no current basis for negotiating with the Greek side and called on Tsipras to make the next move.

As eurozone leaders prepared for today’s emergency summit in Brussels , the heads of government were at odds. France, Italy and Spain are impatient for a deal while Germany, the European commission and northern Europe seem content to let Greece stew andallow the euphoria following Sunday’s vote give way to the sobering realities of bank closures, cash shortages and isolation.

Greek banks are to remain closed until Thursday at the earliest, it was announced, with ATM withdrawals rationed to €60 daily.

“The prospects of a happy resolution of this crisis are rapidly diminishing,” said the British chancellor, George Osborne, after speaking to some of the key policymakers. “If there is no signal from these meetings that Greece and the eurozone are ready to get around the table again, we can expect the financial situation in Greece to deteriorate rapidly.”

The commission had nothing positive at all to say about Sunday’s Greek referendum, while Germany’s increasingly hardline social democratic leader, Sigmar Gabriel, warned that Greece was on the brink of insolvency.

He accused Tsipras, the radical leftist prime minister who outmanoeuvred the rest of the eurozone with his plebiscite, of ruthlessly pursuing the Greek national interest at everyone else’s expense. His message suggested a Grexit was now inevitable as he stressed the need for EU humanitarian programmes to forestall social implosion in Greece.

Tsipras is expected to table new bailout proposals on Tuesday to eurozone leaders meeting in Brussels after he ditched the flamboyant Varoufakis. Over five months of negotiations, Varoufakis, a leftwing economist and neophyte politician, has rubbed his interlocutors up the wrong way, persistently arguing he is right and everyone else is wrong when it comes to dealing with the Greek debt crisis.

The detail of Sunday’s voting patterns left no doubt about the devastating verdict and the challenges it now presents to Europe’s leaders. Around 80% of voters under the age of 34 voted no on Sunday.

Germany’s Gabriel said the Greeks had simply rejected the single currency rules, while Matteo Renzi, the Italian prime minister, delivered a cri de coeur lamenting the desperate situation the eurozone and the EU now found themselves in.

“Two political building sites need our work urgently, in European capitals and in Brussels,” he said. “If we stand still, prisoners of rules, regulations, and bureaucracy, Europe is over. Reconstructing a different Europe will not be easy … The first one is Greece, a country in very difficult social and economic conditions. Meetings tomorrow will have to indicate a conclusive solution to this emergency.”

Merkel has taken a hard line with Greece since Tsipras announced his snap referendum 10 days ago, while the French have been much more accommodating towards Athens. A brief statement issued after the leaders had dined together Monday evening showed little sign of the two main EU leaders bridging their differences.

There were no signs either of movement from the eurozone towards the main demands from Athens – a new deal writing down the Greek debt mountain as urged last week by the International Monetary Fund.

German government sources said there would be no debt reduction measures offered and that it was up to Greece, which ended negotiations with its creditors 10 days ago and called the referendum, to make the next move.

“In light of the decision by the Greek citizens, the conditions to start negotiations on a new aid programme are not met yet,” said Merkel’s spokesman, Steffen Seibert.

Valdis Dombrovskis, the most senior European commission official in charge of the euro, said the referendum result risked leaving everyone a loser. “The no result unfortunately widens the gulf between Greece and other eurozone countries … There is no easy way out of this crisis. Too much time and too many opportunities have been lost.”

A day of frantic politicking in Greece and internationally left few clues as to what happens next. Tsipras has persistently surprised and out-manoeuvred his opposite numbers, but without securing any net gains for a country in the throes of financial collapse. Greece’s bank holiday and the rationing of ATM withdrawals to €60 a day was extended until at least Thursday.

The country’s banks are entirely dependent on the European Central Bank to keep standing and last night the ECB toughened it stance towards Greece’s banks by demanding they put up more collateral in return for the emergency liquidity allowance which has been keeping them afloat. The ECB said its government council is “closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area”.

Tsipras spent much of the day with other Greek party leaders, resulting in the five-party national consensus behind his negotiating strategy committed to debt restructuring. Tsipras’s leftwing Syriza, and his rightwing nationalist coalition partner, Anel, were joined by centre-left Pasok, liberals To Potami, and centre-right New Democracy.

Tsipras’ ‘new’ proposals are likely to lean heavily on his recently tabled third bailout ideas, which call for €29bn in new loans over a two-year period under the eurozone’s ESM permanent bailout fund, combined with a debt swap that would see the ESM buy up Greece’s obligations to the European Central Bank and convert this into longer-term loans at cheaper rates. Greece would have to commit to many of the austerity measures that were roundly rejected by voters on Sunday.

Gabriel, however, emphasised the problems of devising a new bailout under the ESM whose rules are more exacting than those for the eurozone instrument used for the previous bailouts since 2010.

The ESM rules say that a bailout can be considered for a eurozone country if its financial plight imperils the stability of the euro area as a whole. Many argue that this is not the case with Greece, that there is little risk of contagion and destabilisation of the broader currency area. But no one really knows.

Source: theguardian.com