By George Georgiopoulos and James Mackenzie
The Greek central bank warned on Wednesday that the country risks a painful exit from the euro and ultimately even the European Union if Athens and its creditors do not strike a swift aid-for-reforms deal.
The warning, contained in a regular monetary policy report from the central bank, underlined the extent to which officials who once refused any suggestion of ‘Grexit’ are now openly discussing it and setting off the alarm bells.
Despite urgent pleas, including from the White House, there has been little sign of movement since talks between officials from Greece, the European Union, European Central Bank and International Monetary Fund collapsed on Sunday.
Athens has until the end of June to find a way out of the impasse before it faces a 1.6 billion euro repayment due to the International Monetary Fund, potentially leaving it bankrupt and teetering on the edge of the euro zone.
“People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it’s stuck,” said a senior EU diplomat, who declined to be named.
“It’s very dangerous, and we may have an accident.”
A top Greek negotiator told Reuters that Prime Minister Alexis Tsipras’ leftist government was ready to make unspecified concessions but he once again ruled out any cuts to pensions – a major sticking point in the negotiations.
Germany, Europe’s biggest economy, maintained its line that Greece had to make substantial moves to break the stalemate.
“It won’t work without Greece moving significantly,” German Foreign Minister Frank-Walter Steinmeier said in Berlin.
Greek negotiator Euclid Tsakalotos confirmed that Greece does not have the money to repay the IMF, but said the government would only accept a deal that was sustainable and addressed debt, financing and investment – issues the European Union has said it does not want to open at this stage.
“If you have that, then the Greek government will sign the deal,” Tsakalotos said. “If it doesn’t have that kind of deal there is no point in signing onto something that you know is going to fail.”
Hopes of a breakthrough on Thursday at a meeting of European finance ministers, once seen as the last chance, looked increasingly remote. Greek Finance Minister Yanis Varoufakis told reporters in Paris he was not expecting a deal at the gathering in Luxembourg and said only agreement between heads of government could overcome the deadlock.
Tsipras spoke with European Commission President Juncker on Wednesday. There has been speculation that an emergency summit over the weekend could be in the works, although there was no confirmation from officials in Athens or Brussels.
What may follow if no deal is reached remains unclear as no member of the euro zone has ever defaulted on its debt. The Greek central bank said reaching an accord was “an historical imperative” that the country could not ignore.
“Failure to reach an agreement would … mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the European Union,” the Bank of Greece said.
The comment drew an angry reaction from the ruling Syriza party which said Bank of Greece Governor Yannis Stournaras, a former conservative finance minister, had exceeded his authority and was trying to set “asphyxiating” limits on the government.
Elected in January on a pledge to end years of grinding austerity, Tsipras wants his European partners to re-negotiate Greece’s debt mountain, but they have ruled that out for now and instead want to see a fresh round of economic reforms, including pension cuts, to help the state balance its books.
There was little sign of any change in his position as he insisted that without an “honourable compromise” Greece would not accept “the continuation of a catastrophic policy”.
Austrian Chancellor Werner Faymann, one of the European leaders most sympathetic to Athens, flew to Greece seeking to bridge the wide differences and said a deal could still be reached if there were goodwill on all sides.
“I can’t see a solution lying before me, but I see that if we are convinced we want one, we have a good chance,” he said.
Months of uncertainty have already taken their toll. After years of recession, Greece’s economy finally started to grow again last year, but it fell back into negative growth in the first quarter of 2015 and Greece’s central bank predicted the slowdown would accelerate in the second quarter.
Opinion polls show a majority of Greeks want to remain in the euro but there has also been deep resentment of the cuts demanded of Greece, which has seen its economy shrink by more than 25 per cent since the start of the crisis.
“We have to fight even if there is the danger of returning to drachma, which is something I don’t want,” said 43 year-old public servant Christos Michailidis, attending an anti-austerity rally in Athens that drew a few thousand protesters.
Britain, not a member of the euro zone, said it was stepping up preparations for the possibility of Greece falling out of the single currency.
In a sign that the European Central Bank was still standing by Greece, the ECB raised the ceiling on its emergency lifeline to the nation’s stricken banks to 84.1 billion euros from 83 billion. The ECB has been raising the ceiling in small amounts and the substantial hike of more than 1 billion euros reflected the growing strains on the banks as depositors pull money out.
The Greek central bank has said the crisis prompted an outflow of deposits totalling about 30 billion euros from Greek lenders between October and April. The outflows are continuing.
Underlining the gulf in perceptions separating Greece and its creditors, a Greek parliamentary ‘Debt Truth Committee’ set up in April to investigate the recent austerity imposed on the country concluded Athens was under no obligation to repay its debts. The findings of the report are not binding.
“We came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious,” it said.
Such sentiments have lost Greece much sympathy in Europe.
The Bavarian allies of German Chancellor Angela Merkel accused Athens on Wednesday of not grasping the seriousness of the situation, with CSU Secretary-General Andreas Scheuer calling Greek rulers “clowns”.