Europe’s grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts.
While finance ministers of the other 18 eurozone states chorused their insistence that Greece would remain inside the bloc, exasperation with the leftist government’s decision to reject creditors’ final offer and instead call a referendum was manifest and some officials spoke privately of expelling Athens.
“They were playing poker, but in poker, you can always lose,” Austrian Minister of Finance Hans Joerg Schelling said after the Eurogroup that runs the currency met on Saturday without their Greek counterpart to discuss how to limit the fallout.
Photo: AFP
After five months of halting negotiations with a Greek government elected to end the pain of austerity measures, EU leaders left a summit in Brussels on Friday believing that a deal was close to roll over bailout funding and let Athens meet a repayment to the IMF tomorrow and further obligations over the coming months.
However, Greek Prime Minister Alexis Tsipras provoked consternation by returning home to call a referendum for Sunday on the offer and urging voters, weary of years of debt crises, to reject it.
“Tsipras messed up,” one EU official said. “We did everything possible. They chose to blow up when we were so close to settling this in a way that would allow them to sell it.”
Amid political drama in Greece, where a clear majority wants to remain inside the bloc, the next few days present a major challenge to the integrity of a 16-year-old currency bloc, which many blame for massive unemployment in countries outside Germany and its neighbors in the richer north and west of Europe.
“We must do everything we can to fight any conceivable threat of contagion,” German Minister of Finance Wolfgang Schaeuble said after a meeting at which the group effectively called for capital controls to ring-fence Greek banks hemorrhaging cash.
While acknowledging that only Greece — or possibly banks themselves — can instigate such a shutdown, the ministers said the European Central Bank (ECB), whose management was to meet yesterday — should use its powers to stabilize markets.
“You have to count on Greece getting into acute problems in the coming days because of this decision,” said Schaeuble, some of whose conservative allies have made no secret of preferring to see Greece forced out of the eurozone. “That is difficult, as we do not know how it will live up to its commitments.”
However, he and others stressed their faith in stability mechanisms put in place after skepticism among investors pushed the eurozone to breaking point following a run of national bankruptcy scares in the wake of the global crash of 2008.
Echoing French Minister of Finance Michel Sapin, Schaeuble insisted after the fifth such deadlocked ministerial meeting in just over a week: “Greece remains a member of the eurozone and Greece remains part of Europe.”
However, few EU leaders trust the Greek government, whose calls for debt relief and criticisms of the bailout’s deadening effect on growth have been echoed by some leading economists.
When representatives of the three creditor institutions — eurozone governments, the ECB and the IMF — met after Greek Minister of Finance Yanis Varoufakis had left, participants quoted one senior official as joking that at least they could refer again to the lenders as the “Troika,” a term Varoufakis had insisted be dropped because Greeks associated it with external diktats.
Dutch Minister of Finance Jeroen Dijsselbloem, the Eurogroup chairman, repeatedly referred to the possibility that the Greek parliament might reject Tsipras’s call for a referendum. However, lawmakers dashed any prospect of a quick shift in Greek politics before markets open on Monday by voting for it to go ahead.
Still, Dijsselbloem insisted: “The process has not ended. It will never end probably. We will continue to work with Greece. Many things could happen, many scenarios are conceivable.”
As Greeks lined up to take cash from ATMs, it remained to be seen how financial mechanisms would work. If Greece fails, as it has said it will, to repay 1.6 billion euros (US$1.7 billion) to the IMF, that default can have knock-on effects.
Some experts speculate that Greece could formally remain in the eurozone, but issue its own IOUs to pay immediate bills.
The ECB must also decide whether to keep supplying liquidity to Greek banks — once the government, whose debt makes up a large chunk of their assets — is no longer meeting its obligations and once the bailout program formally expires.
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