After less than an hour of discussion Sunday night, Greece’s latest talks with its creditor institutions fell apart. Greece’s representatives say the discussion lasted 45 minutes, while EU sources say it barely stretched to half an hour.
There still seem to be huge gaps between the positions of the creditors (the other eurozone nations, the European Central Bank, and the International Monetary Fund) and Greece’s radical government.
“We should work out an emergency plan because Greece would fall into a state of emergency,” Germany’s EU commissioner Guenther Oettinger said. “Energy supplies, pay for police officials, medical supplies, and pharmaceutical products and much more” needed to be ensured.
Athens faces a $US1.8 billion bill due to the IMF in two weeks. Without a deal, Greece would be out of cash, unable to borrow, and ultimately tossed out of the single currency system.
Despite the urgency, Greek Prime Minister Prime Minister Alexis Tsipras continues to display brinkmanship.
“We will await patiently until the institutions accede to realism,” Tsipras said in a statement to Greek newspaper Efimerida ton Syntakton. “We do not have the right to bury European democracy at the place where it was born.”
The remaining major disputes still seem to be over the extent of austerity (including things like VAT increases), Greece’s state pension system, and further overhaul of hiring and firing laws in the country.
These were the sticking points to a deal two months ago, and there seems to have been very little progress on them.
According to The Associated Press, on Sunday an anonymous Greek official said the country would never accept cuts to pensions and wages or increases in the cost of basic necessities.
At the same time, outgoing IMF chief economist Olivier Blanchard made it clear in his blog just how important those reforms were to his institution, making it clear that pension and VAT reforms would be crucial to a deal:
We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the VAT — involving a widening of its base — and a further adjustment of pensions. Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP.
The next best hope for a deal or some sort of progress is Thursday, when the Eurogroup gathering of finance ministers goes ahead.
“Time is running out,” and the Eurogroup meeting “could be the last chance of a deal before the June 30 deadline when the bundled June IMF payments come due and the current program expires,” Bank of America Merrill Lynch (BAML) analysts said in this week’s look-ahead note.
BAML’s Athanasios Vamvakidis even suggested last week that without meaningful progress by last Friday, it would be extremely difficult to get any deal cobbled together by June 30.
So the meeting of eurozone finance ministers coming will be the next big signal of how close a deal is — and whether Greece will get its latest €7.3 billion ($US8.07 billion, £5.19 billion) bailout disbursement — cash it needs to make payments due to the IMF at the end of the month.
But those June 30 IMF payments are just the beginning. Greece will have to fail to make those payments for a month before the IMF takes action. Before then, Athens has to make €3.5 billion (£2.52 billion, $US3.92 billion) in payments to the European Central Bank (ECB) on June 20.
The ECB is probably the most important factor here. If the ECB judges that the Greek government has defaulted on its bonds, it will most likely pull away its Emergency Liquidity Assistance (ECB) from the Greek banking system. That assistance is propping up the banks, and withdrawing it could send the country’s whole financial system into free fall.
So according to analysts at HSBC and elsewhere, July 20 is the hard deadline — both a payment the government almost certainly can’t postpone, and one that could have immediate consequences if it’s missed.