Greece Faces Decisive Week as Tsipras Is Set to Meet Merkel

by Nikos Chrysoloras, Anthony Czuczka

12:00 AM EET

March 23, 2015

(Bloomberg) -- Greek Prime Minister Alexis Tsipras is set to meet German Chancellor Angela Merkel for the second time in five days on Monday, at the start of a week that may prove decisive for Greece’s future in the euro area.

The meeting in Berlin with the leader of the biggest contributor to Greece’s stalled 240 billion-euro ($259 billion) bailout is a precursor to make-or-break decisions Tsipras faces as his country’s financial predicament becomes ever more parlous. His government needs to spell out economic measures it plans to undertake as early as this week to unlock long-withheld aid payments that will keep the country afloat.

“I hope there’ll be a U-turn on policies in Athens, but I maintain my view that if not, the Greek economy will collapse and they’ll slip out of the euro zone into chaos,” said Erik Nielsen, global chief economist at UniCredit AG. “The Greek government ought to recognize that this is ‘endgame stuff.’’

Locked out of capital markets and with its coffers running dry, Greece is scraping the bottom of the barrel to pay some 1.5 billion euros ($1.6 billion) in pensions and salaries by the end of this week amid signs that it could run out of money by early next month.

European leaders, including Merkel, French President Francois Hollande and European Central Bank President Mario Draghi pressed Tsipras at a March 19 meeting in Brussels to make good on a February accord and ‘‘present a full list of specific reforms’’ in the coming days before any further aid can be disbursed.

Hopes that today’s talks may pave the way for aid payments have bolstered Greek assets since Friday after steep falls earlier this month. Government bonds were trading mostly higher today with the yield on the 3-year government bond dropping 33 basis points to 21 percent at 11:30 a.m. in Athens. The Athens Stock Exchange index was 0.2% higher at 745.70.

Imminent Debt

As Tsipras prepared for the meeting in Brussels, he wrote to Merkel that it will be ‘‘impossible’’ to service imminent debt obligations without short-term financial aid, the Financial Times reported Sunday, citing a March 15 letter seen by the newspaper.

The Greek leader’s first official visit to Berlin since a Jan. 25 ballot catapulted his anti-austerity Syriza party to power will focus on improving bilateral relations, Tsipras, 40, said in a statement published Sunday in the Greek daily Kathimerini.

The meeting gives both leaders a chance to tone down emotions flaring in both countries, including barbs by German politicians against Greek Finance Minister Yanis Varoufakis and calls in Greece to reopen talks on reparations for the Nazi occupation during World War II.

Tsipras’s ‘‘visit to Germany serves the purpose of getting to know each other bilaterally,” Merkel said Friday. “I’ve written down a couple of points and will focus on those things that, from the German perspective, need to be said.”

Stalled Bailout

A Greek government official said the terms attached to the country’s stalled bailout aren’t part of the official agenda of the talks scheduled Monday afternoon in the German Chancellery, and the working dinner which will follow. The talks “will not take place under the pressure of negotiations” Tsipras said in his statement at Kathimerini.

Merkel, who witnessed the uncontrolled collapse of communism in East Germany 25 years ago, says her “political goal” is to keep the euro area intact. She urged Tsipras on Friday to do his part, saying she won’t negotiate with him on her own.

Tsipras said the government will present its proposals for unlocking the next aid payment as soon as possible. Although no specific deadline has been set, euro area finance ministers could discuss an aid payment at an emergency meeting as early as March 27 if Greece delivers an adequate list of measures by then, an EU official said last week.

Deposit Outflows

The standoff has also triggered a run on Greek banks, amid concerns over the country’s place in the euro area. The monthly drop in deposits in January was the steepest recorded in at least 20 years, and the bleeding has since continued. Net withdrawals on Friday were about 450 million euros, on top of 1.1 billion euros which had fled Greek banks in the previous three days, a person familiar with the matter said, asking to to be named, as daily outflow data isn’t public.

Greek banks cover their cash shortfall through an Emergency Liquidity Assistance lifeline, subject to weekly review by the ECB. Last week, the ECB raised the maximum ELA ceiling by just 400 million euros, less than half of what the Greek central bank had requested, to 69.8 billion euros. The ceiling will be reviewed again this week.

“Taking together the resumption of bank deposit outflows, disappointing public finance data and the minimal progress of negotiations, we highlight an increasing risk that payment controls may be implemented soon,” Barclays economists Francois Cabau and Thomas Harjes wrote in a note to clients on March 20.

To contact the reporters on this story: Nikos Chrysoloras in Athens at nchrysoloras@bloomberg.net; Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net Jenny Paris, Alan Crawford