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Germany Sticks to Hard Line as Varoufakis of Greece Steps Aside
Rift Emerges as Europe Gears Up for New Talks on Greece Bailout
(about 2 hours later)
ATHENS — Germany maintained a hard line with Athens on Monday after Greek voters rejected Europe’s austerity policies in a referendum, intensifying pressure on Prime Minister Alexis Tsipras to restart bailout talks and opening a rift with European countries that appeared more inclined now to consider softening the push for austerity.
ATHENS — Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingness to soften the push for austerity that has proved so contentious.
As Mr. Tsipras changed his finance minister Monday and laid plans to restart bailout negotiations with creditors, however, it appeared the jubilation that followed the no vote in Greece could fade quickly as signs of financial collapse become more evident.
The growing rift among European leaders threatens to complicate any new negotiations, as the Greek government moves to restart talks for an international bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.
While the referendum may have lifted Mr. Tsipras’s popularity and bought some time to return to negotiations, Greek banks are almost out of cash and are expected to stay closed for at least several more days, analysts and people close to the situation in Greece said.
If a deal is not struck soon, Greece will probably default on a batch of international debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or i.o.u.s to pay its domestic bills, prompting it to leave the euro currency.
The government decided on Monday that a bank holiday scheduled to end Tuesday would now be extended through Wednesday, and a daily cap on A.T.M. withdrawals of 60 euros, about $66, in place since last week, could be tightened. An announcement was expected later in the day. Long lines formed again at cash machines in Athens on Monday as people continued to take out money in dribs and drabs.
The country’s financial state is growing increasingly dire.
The European Central Bank decided Monday to maintain emergency loans to Greek banks at about 89 billion euros, a level that keeps them from failing but will not prevent them from running out of cash they can issue to depositors within a few days.
As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion euros, will not necessarily be sufficient to keep the money flowing to depositors.
Ominously, the central bank also said it would tighten requirements for collateral that Greek banks must post in return for loans. The decision means that, even if the European Central Bank decides to increase the lending limit, Greek banks might not have enough collateral needed to qualify for more emergency cash.
Faced with a funding crisis, the government extended a weeklong bank holiday through Wednesday and said that a withdrawal cap of €60, or $67, per day from A.T.M.s could be tightened. On Monday, long lines formed again at cash machines throughout Athens as people continued to withdraw whatever funds they could.
The decision was a concession to hard liners on the central bank’s Governing Council, and a sign the central bank is worried about losses it would suffer if Greek banks fail.
Prime Minister Alexis Tsipras of Greece has moved quickly to take advantage of the vote results, making the first steps toward conciliation with the country’s creditors.
If a deal for emergency financial aid or a reduction of the nation’s mountainous debt is not struck soon, Greece will probably default on international loans this month, and paying civil servants and pensioners will be increasingly problematic. Should Greece run out of euros in the absence of a deal, it could soon be forced to issue a parallel currency or i.o.u.s to pay its domestic bills, leading it out of the euro currency.
The combative finance minister, Yanis Varoufakis, abruptly resigned at Mr. Tsipras’s behest. He was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Mr. Varoufakis as Greece’s lead negotiator in April.
Mr. Tsipras on Monday took the first steps toward conciliation with Greece’s creditors. The combative finance minister, Yanis Varoufakis, abruptly resigned at Mr. Tsipras’s behest, and was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Mr. Varoufakis as Greece’s lead negotiator at the end of April.
“I won’t hide the fact that I’m nervous and anxious,” Mr. Tsakalotos said at his swearing-in Monday. “I understand that I’m assuming my post at a difficult time.”
After a six-hour meeting, the leaders of Greece’s five main political parties issued a statement saying they would seek discussions with creditors to secure sufficient funds for the nation’s financing needs. They also pledged to carry out “credible reforms,” tackle unemployment and broach the issue of making Greece’s large public debt more sustainable.
The prime minister also persuaded most opposing political parties to back his basic demands from the country’s creditors.
Still, Germany, the eurozone country to which Greece owes the most money and the one that has tended to take the hardest line in the debt talks, warned on Monday against hopes for a quick resolution. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point.
After a six-hour meeting, the leaders of Greece’s five main political parties issued a statement saying they wanted any negotiation to include a discussion of relief from the country’s debt load — a key sticking point with creditors. They are also pushing for immediate help to keep the banks afloat, quick economic aid to tackle unemployment and new bailout money to cover current debt obligations.
The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.
In return, they said, Greece would be willing to deliver “credible reforms based on the fair distribution of the burden and the promotion of growth with the smallest possible recessionary impact.”
The Greek government said Monday afternoon that Mr. Tsipras and Ms. Merkel had spoken by telephone and had agreed that he would present new debt proposals on Tuesday, when eurozone leaders are to meet in Brussels.
But the impasse over a bailout threatens to take on bigger dimensions, with implications for European unity.
Other European leaders seemed eager to avoid the specter of a Greek exit from the euro, especially since the narrative over the wisdom of austerity appeared to have shifted in popular opinion, as images of Greeks celebrating their repudiation of austerity were broadcast worldwide.
Germany, the eurozone country to which Greece owes the most money, remained resistant. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point. The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.
Officials in France and in Brussels said on Monday that they were unhappy and dumbfounded with the no vote, but let it be known that they would hold the door open to the possibility of a compromise between Greece and its creditors.
Despite Germany’s tough stance, other European leaders seemed eager to avoid the specter of a Greek exit from the euro. While officials in France and Brussels said on Monday that they were unhappy and dumbfounded with the vote, they held the door open to the possibility of a compromise between Greece and its creditors.
At a news conference in Brussels on Monday, the European Commission’s vice president for euro affairs, Valdis Dombrovskis, said that the no vote in Greece would “dramatically weaken” the country’s negotiating stand with creditors and had made things “more complicated.”
At a news conference in Brussels on Monday, the European Commission’s vice president for euro affairs, Valdis Dombrovskis, said that the vote in Greece would “dramatically weaken” the country’s negotiating position with creditors and had made things “more complicated.”
But now is the time to seek a way forward, he said, adding, “If all sides are working seriously, it’s possible to find a solution, even in this very complicated situation.”
But now was the time to seek a way forward, he added, saying: “If all sides are working seriously, it’s possible to find a solution, even in this very complicated situation.”
The French finance minister, Michel Sapin, said on French radio Monday that while Greece’s no vote “resolves nothing,” France could support debt relief for Greece should Mr. Tsipras come forward with a proposal containing “serious” terms for a new bailout package.
In France, the finance minister, Michel Sapin, told French radio that while Greece’s vote “resolves nothing,” France could support debt relief for Greece should Mr. Tsipras come forward with a proposal containing “serious” terms for a new bailout package. Mr. Sapin’s remarks came ahead of a meeting set for Monday evening in Paris between President François Hollande of France and Ms. Merkel to discuss how to deal with Greece.
Mr. Sapin’s remarks came ahead of a meeting set for Monday evening in Paris between President François Hollande of France and Ms. Merkel to discuss how to deal with Greece.
Both leaders called on Greece to submit urgent proposals to avoid a possible exit from the eurozone. The Greek government said that Mr. Tsipras and Ms. Merkel agreed that he would present new debt proposals on Tuesday, when eurozone leaders are set to meet in Brussels.
Mr. Tsipras may recognize that Greece has only days, if not hours, to wring some kind of deal from its creditors before full-scale economic collapse sets in. The country’s banks are on the verge of running out of euros, and Greeks could soon begin to suffer shortages of fuel and other imported goods.
The eurozone finance ministers planned to meet in Brussels on Tuesday afternoon to discuss the offer by Athens to resume discussions. They might then pass along any recommendations to the heads of state meeting on Tuesday evening. Because the deadline for the country’s second bailout package has lapsed, any talks would most likely focus on the terms for a third aid package for the country.
“By the end of the week, we may see most A.T.M.s out of cash, massive pressure on the payment of upcoming public sector wages, tourism issues and wider economic damage,” analysts at Deutsche Bank said on Monday in a note to clients.
In the meantime, the financial situation in Greece is rapidly growing more tenuous.
But the critical issue remains what proposal any new Greek team will bring to the table.
Greek banks could continue to limp along for a few more weeks. But they may face an existential crisis at the end of the month if the Greek government does not make a payment of €3.5 billion due July 20 on bonds held by the European Central Bank. That would seem nearly impossible unless Greece gets some financial aid.
Mr. Varoufakis, an academic with no political experience before he joined the leftist Tsipras government, had consistently argued that Greece desperately needed debt relief more than anything else. While many economists shared that view, he quickly became a lightning rod among Greece’s creditors for his aggressive negotiating style and heated language. Before the referendum vote, he had publicly accused the creditors of “terrorism” against his country.
A missed payment to the central bank would signal unmistakably that the government is bankrupt. It would drag the Greek banks down, too, since they would suffer huge losses on their portfolios of the country’s government bonds.
With Mr. Varoufakis gone, Greece’s eurozone creditors may be more willing to continue negotiations on a further aid package. His departure could be seen as a concession to the sensibilities of other eurozone leaders. But the next few days could determine whether the gulf between Greece and its creditors is now too wide to bridge.
The European Central Bank would have little choice but to stop providing emergency loans that have been keeping the banking system afloat. The central bank is not allowed to lend to insolvent banks.
The Eurogroup of eurozone finance ministers, with whom Greece broke off debt talks late last month, planned to meet in Brussels Monday afternoon to discuss an offer by Athens to resume discussions. Because the deadline for the country’s second bailout package has lapsed, any talks in the Eurogroup on Greek proposals would most likely focus on the terms for a third aid package for the country.
“The moment of truth will be no later than July 20,” said Wilbur Ross, an American investor who owns a large stake in Eurobank Ergasias, the third-largest bank in Greece. “A default there would likely force the E.C.B. to come down on the banks.”
The meeting between Mr. Hollande and Ms. Merkel on Monday evening could prove crucial because, while Germany has taken the hardest line against Greece, France has shown signs of being more conciliatory.
Ominously, the central bank also said on Monday that it would tighten requirements for collateral that Greek banks must post in return for loans. The move means that, even if the European Central Bank decides to later increase the lending limit, Greek banks might not have enough collateral to qualify for more emergency cash.
The two leaders are scheduled to make a brief statement to the news media at 7:15 p.m. in Paris before a working dinner, after which they do not plan to make any further announcement, the French government said.
The decision, a concession to hard-liners on the central bank’s Governing Council, was a sign the central bank is worried about losses it will suffer if Greek banks fail.
Mr. Varoufakis, who announced his resignation via a Twitter message, said in a statement on his website that he was stepping down because Greece’s creditors had made it clear that they did not want to negotiate any further with him.
Bankers in Athens are beginning to worry that without additional aid, banks could run out of cash on Friday, according to Stefanos Kotronakis, who works in Athens for ACI Worldwide, a company that provides payment processing services for banks and A.T.M.s.
“Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners,’ for my … ‘absence’ from its meetings; an idea that the prime minister judged to be potentially helpful to him in reaching an agreement,” he said. “For this reason, I am leaving the Ministry of Finance today.”
“The situation from a liquidity perspective is really critical,” said Mr. Kotronakis, country manager for the company.
Mr. Varoufakis called for the prompt conclusion of “an agreement that involves debt restructuring, less austerity, redistribution in favor of the needy and real reforms.”
People can continue to use debit and credit cards and make electronic transfers within Greece. But Mr. Kotronakis said many merchants insist on cash, in part because they are not sure that their money is safe in a bank.
He included in his announcement a Parthian shot at his interlocutors in the debt negotiations, saying, “I shall wear the creditors’ loathing with pride.”
Without a banking system serving as a conduit for euros and a platform for transactions, Greece might have little choice but to begin printing its own currency.
The French finance minister, Mr. Sapin, in his radio interview on Monday, criticized Mr. Varoufakis for the “terrorism” accusation against creditors.
“That was wrong,” he said, speaking after Mr. Varoufakis announced his resignation. “This was a spirited man, who has faith. But he also made statements that were difficult to accept, especially in France, including using the term ‘terrorism.’”
But Mr. Sapin indicated that the French government would draw a distinction between any resentment of Mr. Varoufakis’s negotiating tactics and the problems still facing Greece.
If Greece now comes back to the negotiating table with a solid plan to jump-start talks, France could be prepared to “ensure that in the early days, the early years, Greece’s debt is alleviated,” Mr. Sapin said.
A Greek exit from the eurozone “is not desired by the French president,” Mr. Sapin said. Nonetheless, he added, if Greece were to leave the euro, the currency bloc would not be destabilized.
