Greece's fate uncertain as European officials deadlock on bailout

Greece's fate uncertain as European officials deadlock on bailout
EU Commissioner for Economic and Financial Affairs Pierre Moscovici, left, Finnish Finance Minister Alexander Stubb and EU Commissioner for the Euro Valdis Dombrovskis talk with Eurogroup President Jeroen Dijsselbloem, back to camera, Saturday in Brussels. (Thierry Charlier / AFP/Getty Images)

European finance chiefs deadlocked Saturday over Greece's request for another big bailout, leaving the nearly bankrupt nation's fate as a Eurozone member hanging by a thread and highlighting growing divisions among its neighbors over how to deal with the biggest crisis ever to confront the euro.

Marathon talks in Brussels broke up without agreement between countries advocating a hard line toward Greece, including Germany and the Netherlands, and those such as France and Italy urging a settlement for the sake of European unity.


Negotiations among the 19 Eurozone finance ministers are to resume Sunday morning, in hope of reaching a common position that their leaders can ratify at a separate summit later in the day.

"It is still very difficult, but work is still in progress," the Dutch finance minister, Jeroen Dijsselbloem, told reporters after 10 hours of talks.

He and his other European colleagues are examining proposals by Athens to cut spending and raise taxes in exchange for desperately needed rescue loans. Their verdict on whether that plan is adequate — and whether they trust the Greek government to implement it — will determine, to a great extent, whether Greece will continue to use the euro.

A thumbs-down probably would set off a chain of events, beginning with the rapid failure of Greek banks, which are being propped up by emergency funds from the European Central Bank. Unable to access more euros and pay its bills, Athens would be forced to default on its debts and to start printing its own devalued currency. The immediate financial toll on Greece would be enormous.

On Saturday, what was supposed to be a discussion of Athens' bailout offer quickly became a heated debate over whether the Greek government could be trusted to live up to its obligations.

Many of Greece's European lenders say they have little to no faith in Prime Minister Alexis Tsipras, the left-wing firebrand whose party came to power in January on an anti-austerity platform. Tsipras broke off previous bailout talks late last month, stunning his fellow Eurozone leaders by putting their bailout terms to a referendum last weekend and successfully persuading voters to reject them.

Days later, faced with the imminent collapse of Greece's financial system, Tsipras did an abrupt about-face and sent European partners a remarkably similar plan with even harsher austerity cuts than those originally envisioned, in the hope of securing a three-year bailout package worth about $60 billion in loans. Such a rescue package would be Greece's third in five years.

To live within its means, the Greek government is proposing spending cuts and tax increases worth about $13 billion.

"There are many concerns — quite a bit of criticism both on the content of the proposals but also on the even more difficult issue of trust," Dijsselbloem said before Saturday's talks began. "How can we really expect this government to implement what it's now promising?"

News reports said that many attendees at Saturday's meeting, led by Germany, want more proof of Athens' good faith before their countries commit to negotiating a new bailout. That could include a demand that Greek lawmakers pass laws reforming their economy within the next week.

"We will definitely not be able to rely on promises," said Wolfgang Schaeuble, the German finance minister.

He said optimism and goodwill toward Athens had been "destroyed by the last months" of brinkmanship by Tsipras' government, especially its decision to hold a snap referendum on the previous proposals.

A demand for fast-track legislation as evidence of Athens' seriousness would extend the deadline that European leaders themselves had imposed on Greece for coming up with a workable bailout plan. German Chancellor Angela Merkel and others had said that the basis for a rescue agreement had to be in place by Sunday night or else they would cut Greece loose to sink on its own.

But whether Greece can hold on that long is another question. Its banks are nearly out of cash, and have been closed for two weeks to prevent a run on their last reserves.


Customers have been limited to about $67 a day in withdrawals from ATMs, an amount that some fear will be slashed further as the crisis drags on. Business has been seriously disrupted for merchants who find they cannot pay their suppliers or transfer money overseas.

A senior Greek official told Mega TV, a privately owned network, that some kind of capital controls might have to remain in effect for two months even if Athens manages to seal a deal with its creditors.

There was optimism going into Saturday's talks that, after a five-month standoff between Greece and its European partners, the outline of an agreement was in sight. Just hours earlier, Tsipras had persuaded Greek lawmakers to back his new offer to creditors, despite the stinging cuts in public spending and other controversial measures it included, such as a tax increase for island businesses dependent on tourism.

But as the discussions in Brussels wore on, those advocating tougher terms for Greece apparently dug in their heels.

Reports emerged in Finland's news media saying that the government there had already determined not to grant Greece a new bailout, at the prodding of the ruling coalition's junior party, a right-wing populist group. Slovakia, Latvia and Lithuania were also reported to be against more aid to Greece.

More serious, though, is opposition from Germany, the Eurozone's most powerful country and Greece's biggest European lender. Several German officials have said that Athens has zero credibility after years of accepting bailouts without implementing reforms, and have openly called for its expulsion from the Eurozone.

Berlin has also rejected one of Greece's key demands: some kind of relief or restructuring of the country's crushing public debt, which has ballooned to about 180% of gross domestic product. The United States, the International Monetary Fund and many analysts say that easing Greece's debt load is crucial if the economy is to start growing again.

During Saturday's meeting, a media stir erupted over accounts of a briefing paper reportedly drawn up by the German Finance Ministry suggesting that Greece be kicked out of the Eurozone for five years, until its finances were back in order. There was no official confirmation — or denial — of the authenticity of the document, but its sudden leak to news media was an indication of the tension and gamesmanship at the talks.

An exit from the euro currency union would decimate Greece's already-devastated economy, which has shrunk 25% since 2009 after repeated rounds of austerity cuts.

But a so-called "Grexit" would also deal a heavy blow to the rest of the European Union, which sees the euro as its most important symbol of greater integration among EU countries. Membership in the currency union was supposed to be irreversible; the banishment of Greece would call into question the viability of the project.

In recent days, France has emerged as Greece's strongest ally in trying to convince other European nations of Athens' sincerity and of the importance of maintaining the integrity of the Eurozone.


Spain and Italy have also described the recent Greek proposals as a promising start and a possible basis to continue negotiations.

"Credibility is very low, and so we will see," Spanish Finance Minister Luis de Guindos said Saturday before he headed into the meeting in Brussels. "I hope that Grexit will not take place."

Special correspondent Dody Tsiantar in Athens contributed to this report.