Tue Jul 7,
2015 2:44am EDT Related: WORLD, GREECE
BRUSSELS/ATHENS
| BY PAUL TAYLOR AND COSTAS PITAS
Reuters
With Greek
banks rapidly running out of cash and the European Central Bank slowly
tightening the noose on their funding, Tsipras must persuade the bloc's other
18 leaders, many of whom are exasperated after five years of Greek crisis, to
open rapid negotiations for a major new loan to rescue his country.
The leaders
of Germany and France, the currency area's two main powers, said after
conferring on Monday that the door was still open to a deal to save Greece from
plunging into economic turmoil and ditching the euro.
But
Chancellor Angela Merkel, facing rising pressure in Germany
to cut Greece loose, made
clear it was up to Tsipras to come up with convincing proposals after Athens spurned the tax
rises, spending cuts and pension and labor reforms that were on the table
before its bailout expired last week.
From the
Greek side, the key to making any deal politically acceptable will be to win a
stronger commitment from Merkel and other lenders to reschedule Greece 's giant
debt burden, which the International Monetary Fund says is unsustainable.
Without
some firmer pledge of debt relief, neither Greece nor the IMF are likely to
accept a deal. But that may be more than Germany and its northern allies can
swallow.
"The
door is open to negotiations, but there isn't much time left and the situation
is urgent both for Greece
and for Europe," French President Francois Hollande said in a joint media
appearance with Merkel in Paris .
At stake at
the emergency summit beginning at 6 p.m. (2.00 p.m. EDT) in Brussels
is more than just the future of Greece ,
a nation of 11 million that makes up just 2 percent of the euro zone's economic
output and population.
If Greek
banks run out of money and the country has to print its own currency, it could
lead to a state leaving the euro for the first time since it was launched in
1999, creating a precedent and raising doubts about the long-term viability of
an incomplete European monetary union.
"Even
if it did not trigger a short-term domino effect, the integrity of the euro
zone would come under fresh threat with each episode of political uncertainty
within member countries," said Thibault Mercier, an analyst at BNP
Paribas.
CONCESSIONS
UNCLEAR
Strengthened
by the overwhelming 61.3 percent 'No' vote in Sunday's referendum, the leftist
Tsipras won the unprecedented support of all other Greek party leaders on
Monday and replaced his abrasive Finance Minister Yanis Varoufakis with the
soft-spoken negotiator Euclid Tsakalotos.
In an
intensive round of telephone diplomacy, he called the heads of the ECB, the IMF
and the European Commission, as well as Merkel and Russian President Vladimir
Putin.
But he gave
little public clue of what reform concessions he would make to try to convince
deeply skeptical Europeans to lend Athens more money after five months of
acrimonious and fruitless negotiations.
His
proposals were not expected to go much beyond a letter he sent to euro zone
partners last week, accepting most of the terms of a creditors' offer that was
no longer on the table, but still seeking some loopholes for social or
coalition reasons.
Greek
newspapers dramatized the make-or-break nature of the Brussels showdown.
Centrist
daily Ethnos headlined: "Time has run out for a solution before
catastrophe," while the center-right Eleftheros Typos said: "Tsipras’
games finish at today's council: Time of crisis: deal or Grexit."
Greek
newspapers said the proposals would be based on ideas that Commission President
Jean-Claude Juncker put forward at the end of June with a few tweaks and would
not differ much from the last plans presented by Athens itself last week.
Euro zone
national officials were irritated that Juncker had gone beyond the agreed
negotiating mandate of the three creditor institutions in his last-ditch
diplomacy, and it is not clear that they will be more receptive to his ideas
now.
A clear
majority of Greece 's
18 partners favor a hard line at the summit, arguing that they too are
democracies and that Greeks should not get easier money because they had
rejected the austerity terms, casting further doubt on whether they would
implement any reforms agreed now.
The ECB
left unchanged its emergency liquidity lifeline for Greek banks but raised the
discount it charges on collateral they have to present for funds - a measure
banking sources said was largely symbolic since the total they could borrow was
capped.
A bank
closure in force since the talks collapsed was prolonged until Thursday at
least, and cash withdrawals remain limited to 60 euros a day, with 20 euro
notes running out.
Even with
the country was on the brink of economic collapse, Greek newspapers reported
the government was still seeking exceptions from its reform pledges for special
interests.
Athens
wants to keep a 30 percent discount on value added tax on Greek islands and
protect defense spending from cuts, which rightist junior coalition partners
the Independent Greeks have called "red lines".
(Additional
reporting by Renee Maltezou, Angeliki Koutantou and George Georgiopoulos in Athens , John O'Donnell in Frankfurt and Mark John in Paris ; Writing by Paul
Taylor; editing by John Stonestreet)
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