Last chance to save Greece from the abyss as tempers fray
Europe has 24 hours to save Greece from the abyss of a eurozone exit after the debtor country rejected a €15bn rescue plan, lashing out at attempts to blackmail the country into submission.
Greece's fate is due to be decided at a last-ditch meeting of eurozone finance ministers in Brussels later today, as differences over tax rises and spending cuts continue to hold back an eleventh-hour agreement.
The meeting has been billed as the last possible opportunity for Greece to cede to creditor demands and stave off a default.
In the absence of a deal, creditors are planning for a series of emergency default scenarios, as the banking system would likely face ruin. Capital controls in the form of enforced bank holidays and deposit withdrawal limits could come as early as Monday, according to analysts at Credit Suisse.
The threat of an unprecedented default on June 30 increased yesterday, after Athens rejected a temporary five-month bail-out extension, which could see it make a series of crunching debt obligations over the summer.
The plan is contingent on the Greek parliament passing a number of legislative measures demanded by the Troika, and could release funds that would pay back the IMF and European Central Bank until October.
But finance minister Yanis Varoufakis rejected the proposals, saying creditors had reneged on their promises, taking a tougher line after some member states thought the demands were too "soft" on his country. Mr Varoufakis added there was "no reason we will not have a deal on Saturday".
Greece has long pushed for a "comprehensive", rather than partial, deal, which is seen as prolonging the country's agony as the economy has already fallen into recession.
Following a week of fruitless and acrimonious talks in Brussels, Germany's Angela Merkel pleaded with Greek prime minister Alexis Tsipras to accept a "very generous offer" which demands that €3.9bn is raised through tax hikes and pension reforms in 2016.
"We made it very clear to Mr Tsipras that it ought to be accepted," said Ms Merkel, whose attitude has hardened against the government during five months of protracted and ill-tempered negotiations.
Ms Merkel added that there was no "plan B" for the country.
Greece's creaking banking system is now facing the prospect of a devastating run on its assets after Athens failed to give ground on an ultimatum presented by its paymasters.
In a three-hour aborted session of finance ministers, both sides failed to agree on a final version of a deal to report back to European leaders convening for a two-day summit.
At the summit, which was billed as British prime minister David Cameron's bid to kick-start his EU renegotiation ploy, leaders such as Ms Merkel and Holland's Mark Rutte, reportedly told Mr Tsipras to "shut up" over his pleas for a reprieve over the dinner table.
In a sign of how desperate the government's cash grab has become, it failed to make payments to thousands of the country's pensions on Friday and had to rely on funds from the central bank instead.
Greece's paymasters are demanding the government hike VAT on processed foods, restaurants, hotels and the country's popular holiday islands, in return for cash they need to avoid a debt default on June 30.
The proposals have been fiercely resisted by the Leftist Syriza government as punishing the poor and crippling the country's thriving tourist industry.
Amid escalating defiance among his Leftist parliamentarians, the Greek premier was due to hold an emergency meeting of his cabinet last night.
On his departure from Brussels after a testing week, Mr Tsipras vowed not to cede to economic "blackmail". He promised to defend the European values of "democracy, solidarity, equality and mutual respect".
"These principles were not based on blackmails and ultimatums, and especially in these crucial times no one has the right to put in danger these principles," Mr Tsipras said.
European Commission president Jean-Claude Juncker denied creditors had proposed such a "take-it-or-leave-it" deal, accusing Mr Tsipras of being "un-European" for perpetuating such an idea.
EU officials think the prospects of an agreement are now "better than 50pc", according to one official. But the proposal for a temporary deal until November was denounced as "worse than the Memorandum" - the initial rescue programme Greece was forced to sign up to in 2012, and which Syriza vowed to overturn when they were elected in January.
"It would be humiliating, and at the same time tantamount to acceptance of the course towards a third memorandum in November," said Syriza MP Yannis Micheloyiannakis. "Now is the time to say the big no."
Bank deposits have fallen to an 11-year low, pushing the financial system to the brink of insolvency.
Without a staff level agreement on Tuesday, the ECB could "lose perspective", pulling the plug on the money and forcing the government to implement capital controls, said Mark Wall, chief economist at Deutsche Bank.
"It follows that bank solvency would deteriorate, eroding the basis for [the emergency money]. This would force Greece to close the banks and re-open them under capital controls." (© Daily Telegraph London)