E.U. Urged to Plan for Greece to Default

By JAMES KANTER, ALISON SMALE and NIKI KITSANTONISJUNE 15, 2015

The New York Times

BRUSSELS — A chorus of voices on Monday called on European Union authorities to plan for Greece to default on its huge pile of debt after bailout talks between Athens and its creditors deteriorated over the weekend.

But while European leaders dialed up the sense of urgency, they did little to offer a way to break the deadlock. They instead put the onus on the government in Athens to prevent Greece from becoming the first to quit the eurozone in what would be a major setback to the nearly seven-decade project to unify the Continent.

Some senior politicians and policy makers from Germany were among the most outspoken, with one warning of the need for a “state of emergency” to handle the potential fallout from a failure to reach a deal with the Greek government.

The impasse over the debt talks exposed the wide gap between Greece and its creditors — other eurozone countries, the European Central Bank and the International Monetary Fund. The two sides are deadlocked over what steps Greece must take to overhaul its economy, particularly regarding its pension system and tax systems.

Unless they work out a deal, the creditors will not unlock aid payments from Athens’s recently extended international bailout, raising the likelihood that Greece willbe forced to impose capital controls and default on its loans. That would prompt a new bout of speculation about the long-term viability of the 19-nation currency bloc.

All parties have repeatedly found ways to delay a reckoning in the long-running Greek debt crisis. But the current round of posturing and brinkmanship is expected to escalate toward the end of June, when the bailout extension expires and Greece has to come up with a repayment of 1.6 billion euros, or $1.8 billion, to the International Monetary Fund.

The sides were hardening their positions in advance of Thursday’s meeting of euro area finance ministers, whose approval is required for any resolution to take effect. European markets also slumped on Monday; Greece’s stock market fell sharply, closing about 4.7 percent lower, as interest rates on European government bonds rose.

Weekend discussions between senior Greek government officials and representatives of creditor groups broke down Sunday evening, as the two sides refused to soften their long-held bargaining positions.

But Gavriil Sakellaridis, a spokesman for the Greek government, said on Monday that for Athens the “only plan, basic plan, is to reach a deal.” He said that “efforts will continue for a mutually beneficial agreement.”

Mr. Sakellaridis repeated, however, that Greece would not cut pensions or raise the valued-added tax on basic goods, steps that, according to the government, the creditors have insisted Athens must take to release the bailout funds. Asked whether Greece would submit new ideas to creditors, he said that the government had “to a great extent reached its limit on proposals.”

President François Hollande of France warned on Monday that failure to reach a deal on Greece could lead to “a period of turbulence.”

Speaking at a news conference at the International Paris Air Show, Mr. Hollande said that he would tell the Greek prime minister, Alexis Tsipras, “Let’s not waste time. Let’s resume negotiations as soon as possible.”

One of the main issues hanging over the negotiations is the continuing flight of capital from the Greek banking system. Mario Draghi, the president of the European Central Bank, said on Monday that his institution would continue providing emergency funding to Greek banks as long as they remained healthy. Mr. Draghi, speaking before a European Parliament committee in Brussels, said that any loosening of the rules on the lenders’ holdings of short-term debt — a primary source of the fragile Greek government’s funding — hinged on the “credible” prospect of a deal with creditors.

“The ball lies firmly in the camp of the Greek authorities,” Mr. Draghi added. “Urgent action is necessary.”

Jens Weidmann, the president of the Bundesbank, Germany’s central bank, echoed that sentiment and warned of the increasing danger that Greece would have to declare bankruptcy. “Time is running out. The likelihood that no solution can be found is growing day by day,” he told a conference in Frankfurt on Monday. “There seems to be a lack of will to reach agreement,” he said.

Mr. Weidmann argued for something more than a stopgap solution so that “Greece can stand on its own two legs” without continually turning to partners for help.

This is just the latest battle of wills in the crisis that has prompted speculation that Greece is in imminent danger of abandoning the euro.

Four years ago, after months of arduous negotiations and large anti-austerity rallies in Athens, lenders agreed to reduce interest rates paid by Greece for its loans; the following spring, private creditors had their loans restructured.

A standoff late last year, when lenders said Greece had failed to fulfill its loan conditions, prompted political upheaval and led to snap general elections. The results brought the left-wing Syriza party to power and finally led to an interim agreement with the creditors in February that extended the European part of the bailout program by four months.

Günther Oettinger, the European commissioner for digital affairs, who is close to Chancellor Angela Merkel of Germany, called on the European Commission to make plans for a “state of emergency” in Greece from July 1. The commission helps oversee Greece’s compliance with the terms of its loans.

Mr. Oettinger was among several leaders of Ms. Merkel’s Christian Democrats who met for a regular party leadership session on Monday at which Greece was the foremost topic.

There were also cautionary words for Greece from Sigmar Gabriel, the leader of the center-left Social Democrats, who are Ms. Merkel’s partners in government.

In what amounted to the strongest warning yet from his party to the leftist government in Athens, Mr. Gabriel told Bild, Germany’s top-selling newspaper, “We want to help Greece and keep them in the euro,” but “it is not only time that is running out, but everywhere in Europe the patience.”

Mr. Gabriel also expressed sympathy for ordinary Greeks, “who so urgently need this help from Europe.” But, he emphasized, “Europe and Germany will not be blackmailed. And we will not let German workers and their families pay for the exaggerated election promises of a partly communist government.”

The Athens government sought to underline that the debt crisis was as much a problem for Europe as for the Greek people — and indicated that it was prepared to bet that its creditors would blink first.

“We will patiently wait for the institutions to adhere to realism,” Mr. Tsipras said, referring to Greece’s creditors.

“Those who perceive our sincere wish for a solution and our attempts to bridge the differences as a sign of weakness, should consider the following: We are not simply shouldering a history laden with struggles,” Mr. Tsipras said. “We are shouldering the dignity of our people, as well as the hopes of the people of Europe.”

Greek newspapers criticized European creditors for making too many demands that risked unleashing economic chaos, but some also suggested that the Athens government was mismanaging the latest chapter of the debt drama.

“A scenario of rupture, the road opens to default,” the right-wing Eleftheros Typos said.

“Callous creditors, awkward government,” the center-left Ta Nea said.

The European Commission said at a daily briefing in Brussels on Monday that there were no scheduled meetings between Greece and its creditors before a meeting of eurozone finance ministers on Thursday in Luxembourg. But the president of the European Commission, Jean-Claude Juncker, was expected to meet with Mr. Draghi to discuss the talks.

Correction: June 15, 2015

An earlier version of this article misspelled the given name of the European commissioner for digital affairs. He is Günther Oettinger, not Günter.

James Kanter reported from Brussels, Alison Smale from Berlin, and Niki Kitsantonis from Athens. David Jolly contributed reporting from Paris.