Greek economy’s fate hangs in balance as euro zone leaders meet in Brussels

Euro zone finance ministers and leaders gather in Brussels today for a series of emergency meetings on Greece that are likely to prove decisive in the next steps in the Greek crisis following Sunday's rejection of the terms of the country's bailout package.

After a phone call to German chancellor Angela Merkel yesterday, it was confirmed that Greek prime minister Alexis Tsipras would present fresh proposals to leaders at the summit. Euro zone ministers, including Minister for Finance Michael Noonan, will meet beforehand, with European Central Bank president Mario Draghi due to attend both meetings.

With the euro zone facing its greatest crisis since its inception 15 years ago, Fitch rating agency said the No vote in Sunday's referendum "dramatically increases" the risk of the country leaving the euro zone.

With Greece’s lenders yet to forge a common position on further bailout aid for Greece, there were signals creditors could adopt a tough stance in Brussels.

Speaking yesterday, the EU commissioner with responsibility for the euro, Valdis Dombrovskis, said the commission had taken note of the outcome of the referendum, but warned that the No vote "widens the gap" between Greece and other euro zone countries. He said that discussion on a new bailout programme for Greece could only take place once the eurogroup had sanctioned a request. "We need a mandate from the eurogroup. Only then we can start negotiating with Greece on the new programme."

In a sign of the difficulties that lie ahead for Alexis Tsipras to secure a satisfactory bailout deal, Mr Dombrovskis said European taxpayers had offered “unprecedented financial assistance” to Greece, but “regrettably” the current Greek government had been unable to produce a credible strategy to emerge from the crisis.

Nineteen democracies

He stressed the European institutions, particularly the ECB, now had a range of tools in place to safeguard the stability of the euro, including the ECB’s Outright Monetary Transactions programme, the legality of which had been recently upheld by the European Court of Justice. “It’s very clear that in the euro area we have 19 democracies, not only one democracy,” the former Latvian prime minister said.

Similar indications of resistance to major concessions to Greece, particularly around the issue of debt relief, emerged from Berlin yesterday.

Spokesman for German chancellor Angela Merkel Steffen Seibert said it was too early to begin discussions. "The readiness to talk is there, the door for talks is open . . . but the circumstances are not yet there to begin talks about a new programme." But he added there was "absolutely no reason" to change the German view that Greek debt is sustainable, and that this was the basis on which German officials would enter any future talks with Greece.

Though German officials were tight-lipped yesterday morning, saying the ball was firmly in Greece’s court, they sent a clear signal on what they felt any new EU-International Monetary Fund programme application should not contain: an application for debt writedowns.

Last Thursday, the Greek government pounced on an IMF document that said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European taxpayer financed loans. In addition, the IMF said Greece would need at least an additional €50 billion over the next three years to stay afloat.

A spokesman for the finance ministry yesterday said the IMF view that Greek debt was not sustainable was based on “its tradition”, and its call for a writedown was a matter of the IMF reaching for a “classic” fund tool.

But he added the IMF was participating in a European programme that had agreed to try to avoid writedowns on unsustainable debt through “economic programmes and reforms”.

"In Europe we have common agreement to go an alternative route," said Martin Jäger, spokesman for the finance minister.

Bigger hole

As euro zone finance ministers prepared to meet for the first time since Sunday’s referendum, Malta’s finance minister questioned his ability to sell a further rescue package to his own country. “The hole has got bigger and bigger. That’s when you look reality in the face and say: I am going back to my country, are we going to ask our people to borrow again in order to lend to Greece when we don’t have certainty of getting our money back?”

Spain’s economy minister, Luis de Guindos, said a bridge programme for Greece “doesn’t seem possible”. He added that Greece would have to take the next steps in order to get negotiations going.

Meanwhile, in a short statement, the IMF managing director said the IMF had “taken note” of the referendum in Greece. “We are monitoring the situation closely and stand ready to assist Greece if requested to do so.”