Greece Won’t Present New Proposal to Eurogroup to Unlock Aid

by Nikos ChrysolorasEleni Chrepa

June 15, 2015 — 4:17 PM EEST Updated on June 16, 2015 — 1:11 PM EEST

Bloomberg

Greece snubbed European pleas to submit a proposal to avert a default, dimming chances of a compromise at a key meeting this week.

Greek stocks fell for a third day on Tuesday on concern time is running out. The country needs to seal an accord or get an extension before the euro area’s bailout expires on June 30, or risk missing payments on its debt of about 313 billion ($354 billion) euros.

“The overwhelming sense of Greece’s creditors is that the government does not fully understand the institutional constraints it faces, the level of reform detail necessary for a deal and that is massively underestimating the risk and impact of capital controls,” Eurasia Group analysts Mujtaba Rahman and Federico Santi wrote in a note on Tuesday. “Even if a Euro summit is called, it may prove too late.”

Greek Prime Minister Alexis Tsipras is scheduled to address lawmakers from his party in Parliament at 2 p.m. in Athens.

Finance Minister Yanis Varoufakis told Bild newspaper that any new proposals would need to be thrashed out at a lower level before they could be presented to the finance ministers set to meet June 18 in Luxembourg. A Greek government official, who asked not to be named in line with policy, said the government hasn’t submitted a new plan.

Stocks Drop

Stocks declined as the extent of the remaining policy divide was laid bare after weekend talks billed by European officials as a last attempt to end the standoff crumbled.

The Athens Stock Exchange Index fell 2.6 percent on Tuesday, while the Athex Banks Index dropped 4.3 percent at 12:55 p.m. local time. Concern is also starting to spread to other markets. Spanish government bonds dropped, pushing the 10-year yield above 2.5 percent for the first time since August, while Italian and Portuguese bonds also declined.

Finance Ministry officials from the 19-nation euro zone are due to hold a Greece call on Tuesday afternoon.

On Sunday, talks between the European Union and Greece broke down completely after just 45 minutes, with neither side prepared to budge. Though the financial gap between their proposals for the Greek budget is as small as 2 billion euros a year -- tiny compared with the 245 billion euro bailout program that expires June 30 -- the ideological differences are huge. The government of Alexis Tsipras, for example, insists it will never reduce pensions: “One can only read political motives in the creditors’ insistence on new cuts to pensions after five years of plundering them,” Tsipras said today. EU countries, including Greece’s natural allies such as Italy, say they won’t finance a pension system in Greece that is more generous than their own.

This back-and-forth is no longer about finding a compromise but about apportioning blame if Greece defaults. It will take a miracle for a deal to be reached at the June 18 meeting of finance ministers or the June 25 Brussels summit of euro-zone leaders. Not even German Chancellor Angela Merkel’s desire to keep Greece in the euro can overcome the reluctance of her party to vote for a deal that the International Monetary Fund wouldn’t approve. The IMF has already said no to the Greek proposals, which look increasingly mocking. Miracles happen, but Grexit is now the more likely scenario, and the Greek stock market has tanked today in acknowledgment of this sad reality.

Europe needs a “strong and comprehensive agreement, and we need this very soon,” European Central Bank President Mario Draghi told lawmakers at the European Parliament in Brussels on Monday. “While all actors will now need to go the extra mile, the ball lies squarely in the camp of the Greek government to take the necessary steps.”

Greece disputes that characterization. The government has said that it was awaiting an invitation from its creditors to proceed.

“The Greek side remains ready to conclude the negotiations,” the government said in e-mailed statement on Tuesday.

No More Concessions

With both sides digging in, some euro-area officials publicly raised the prospect of Greece’s exit from the currency region as the Greek government suggested it had reached the limits of its ability to make concessions. Greece is resisting demands for further cuts in pension spending as well as tax increases.

Michael Grosse-Broemer, the parliamentary majority whip for Chancellor Angela Merkel’s party, said on Tuesday that a Greek exit from euro area is possible if a “solid” agreement doesn’t emerge.

“This permanent position of denial is for me and many others in the caucus very difficult to understand,” he told reporters in Berlin.

Government backers plan to rally on Wednesday night at the central square in Athens.

Tsipras, in a statement on Monday, portrayed Greece as the torchbearer of democracy, standing firm against creditors’ demand for pension cuts.

“One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging,” Tsipras said. Greece will wait patiently until “the institutions adhere to realism.”