Greece and creditors fail in 'last attempt' to reach deal

Sun Jun 14, 2015 4:25pm EDT Related: WORLD, GREECE

BRUSSELS/ATHENS | BY JAN STRUPCZEWSKI AND RENEE MALTEZOU

Reuters

Talks on ending a deadlock between Greece and its international creditors broke up in failure on Sunday, with European leaders venting their frustration as Athens stumbled closer toward a debt default that threatens its future in the euro.

European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund by the end of this month.

Greece retorted it was still ready to talk, but that EU and IMF officials had said they were not authorized to negotiate further. Athens insists it will never give in to demands for more pension and wage cuts.

"This is very disappointing and sad. It was a last attempt to bridge our differences but the gap is too large. One can discuss a gap, but this is an ocean," said a person who was close to the talks.

Both sides acknowledged the talks had lasted less than an hour, although even here accounts differed: Greece put the length at 45 minutes, EU officials at half an hour.

Following what it called this "last attempt" at a solution, the EU's executive Commission said euro zone finance ministers would now tackle the issue when they meet on Thursday.

With no technical deal apparently possible, the ministers are likely to have to make difficult political decisions on Greece's membership of the currency bloc.

Failure to keep Greece in the euro, after years of arduous negotiations and two emergency bailouts totaling 240 billion euros, would send it lurching into the unknown and mark a historic blow to the EU's most ambitious project.

Last Friday, Greek Prime Minister Alexis Tsipras had indicated he would accept painful compromises on demands for austerity and reform in return for debt relief.

But the Commission said after the talks, which also involved the European Central Bank, that "the Greek proposals remain incomplete".

"While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of Commission, ECB and IMF," it said. These amounted to up to 2 billion euros a year in permanent budget savings.

EU officials said Athens had moved closer to the lenders on the size of Greece's primary surplus - the budget balance before its debt repayments - but had not said how it intended to achieve this. Otherwise the Greek delegation, led by Deputy Prime Minister Yannis Dragasakis, had offered nothing new, they added.

Dragasakis said the Greek delegation remained ready to resume talks but blamed European lenders for insisting on pension cuts and value-added tax hikes to close the projected budget gap.

CONFRONTATIONAL LINE

European leaders have piled pressure on Tsipras to offer major concessions in the search for a deal with the EU and IMF as the country faces a debt default in just over two weeks.

The talks' failure followed signs of an increasingly confrontational line by Greece's European Union partners. The toughest language came not from Greece's long-standing conservative critics but from German Social Democrat chief Sigmar Gabriel, who until recently had been regarded as sympathetic, at least by Berlin standards.

He wrote in Bild newspaper that he wanted to keep Greece in the euro. "But not only is time running out but so too is patience across Europe. Everywhere in Europe, the sentiment is growing that enough is enough," said Gabriel, who is vice-chancellor in Angela Merkel's grand coalition government.

"The shadow of an exit of Greece from the euro zone takes on ever clearer shape," he said. "Repeated apparently final attempts to reach a deal are starting to make the whole process look ridiculous. There is an ever greater number of people who feel as if the Greek government is giving them the run-around."

Germany's Frankfurter Allgemeine Sonntagszeitung reported European Commission President Jean-Claude Juncker, also reputed to have been more sympathetic to Greek views, warned Tsipras about the risk of "Grexit" - a Greek exit from the euro - when they met last week.

Tsipras says imposing yet more austerity on a country whose economy has shrunk by a quarter in recent years is futile, and will only deepen the suffering of Greeks whose living standards have already dived while unemployment soared.

"REGIME CHANGE"

U.S.-based economic analyst Jacob Funk Kirkegaard cast doubt on the Athens government's longevity. He said Europe seemed to be giving up on trying to coax Tsipras toward the political center, opting for confrontation that might lead to "a new more realistic government".

"It is increasingly obvious he is not even a closet centrist but largely seems to agree with the left wing of his party. The euro area thus has no real choice but to seek regime change in Athens," he said on the website of the Peterson Institute for International Economics.

Tsipras still seems to have some support in his quest for debt relief. A person familiar with the negotiations told Reuters that discussions were under way on the issue.

Athens faces immediate problems in repaying debts as the EU and IMF have not paid any money from Greece's bailout programs since the middle of last year. On top of the IMF loan, it must also repay 6.7 billion euros when Greek bonds held by the ECB fall due in July and August.

Even if this short-term hump can be overcome, Greece still faces the daunting prospect of eventually repaying the bailout loans, something that will hang over its enfeebled economy for decades unless a relief deal is achieved.

(Additional reporting by Paul Taylor and John O'Donnell; Writing by David Stamp; Editing by Mark Trevelyan)