Greece given Sunday deadline or faces exit from euro

European leaders set a Sunday deadline for Greece to accept a rescue, saying otherwise they will take the unprecedented step of propelling the country out of the euro zone.

At a Brussels summit, Greece’s anti-austerity government was ordered to make new economic reform proposals that could earn it another aid package and head off financial ruin.

“We have only a few days left to find a solution,” the German chancellor Angela Merkel said on Tuesday after euro-zone leaders met in Brussels. She conceded that she was “not especially optimistic”.

Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be unbreakable and throwing more than half a century of European economic and political integration into reverse.

“We have a Greek exit scenario prepared in detail,” the European Commission president Jean-Claude Juncker said.

The euro dipped in response to the ultimatum, and was 0.2 per cent lower at US$1.0990 in early-morning Hong Kong trading, hovering near a six-week low. The MSCI Asia Pacific Index sank 2.4 per cent to a five-month low amid a rout in Chinese equities that sent the Shanghai Composite Index down as much as 8.2 per cent.

With shortages of medicine turning Greece’s fiscal crisis into a humanitarian one and Russia sizing up the country as a potential ally inside the European Union, the consequences of shutting off funding to Europe’s most debt-stricken nation go far beyond the narrow economic stakes.

At the centre of the storm is the Greek prime minister Alexis Tsipras, who shored up his domestic position and claimed he would gained leverage over creditors by winning last week’s anti-austerity referendum with 61 per cent of the vote. Mr Tsipras said after the summit that Greece had outlined its new proposals.

Mr Tsipras said the popular groundswell gave him a “strong weapon” to take on the creditors and repeated a vow to offer the “credible reforms” that prior Greek governments were too timid to broach.

For another few days, the European Central Bank is standing between Greece and the economic abyss that opened up after the government let its aid programme lapse. Greek banks, shut since July 3, are running out of paper money for ATMs and relying on emergency loans from the ECB to avoid collapse.

“Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” the European Union president Donald Tusk said. “If someone has any illusions that it will not be so, they are naive.”

Deadlines laid out at the summit appeared less fluid than was usually the case in European deliberations. Euro-zone finance ministers will hold a conference call on Wednesday to weigh Greece’s new aid request and call for an evaluation by the commission.

By 8.30am on Friday, Greece must spell out how it will make the economy more competitive and save money in the process, which would require it to stomach many of the reforms that Mr Tsipras’s left-leaning Syriza party has resisted since coming to power in January.

Expert assessment of that package would feed into a final set of meetings, culminating in summits of both euro-zone leaders and the broader 28-country EU on Sunday.

“This is the big one,” said Malcolm Barr, an economist at JPMorgan in London. “The good news for Greece is that it is being given a clear opportunity to put its proposals in a concrete form and have them evaluated by the rest of the region.”

While a new programme would stretch for two to three years, finance ministers bandied about technical solutions for the short term. Austria’s Hans Joerg Schelling cited “a number of variants” for getting Greece through the next few weeks, such as using untapped funds or striking ad hoc deals similar to the first aid package in 2010.

Follow The National’s Business section on Twitter


Share This Post