On Tuesday Greece failed to make its payment to the IMF. Though talks between the various parties continue and a deal may still be struck, Wednesday dawned with Greece adrift – with no recourse to further funding from the IMF or the bailout program.
The referendum is due on July 5, though rumors circulated on Wednesday that it might be canceled. If it does go ahead, Greek voters face a stark choice: Give in to their creditors and accept painful economic reforms, or go their own way. The latter course, some European leaders have made clear, will amount to a decision to quit the euro zone – though Tsipras disputes that view.
This account, based on interviews with people close to the negotiations, shows how the debt crisis became a political one. None of the main players would speak to Reuters on the record.
When he announced the referendum, Tsipras hoped the European institutions would grant some respite from financial pressures until the vote could be held. He asked for Greece’s bailout program to be extended beyond July 5.
France was willing to discuss the idea, euro zone officials said. But other finance ministers refused. “That (calling a referendum) is a sad decision for Greece,” said Jeroen Dijsselbloem, president of the Eurogroup. “It has closed the door on further talks while the door was still open, in my mind.”
Schaeuble was blunter: “The negotiations are clearly ended, if I understand Mr Tsipras correctly. We have no grounds for further discussions.”
Early that evening Varoufakis, the Greek finance minister, left the EU Council building in Brussels. According to several participants in the Eurogroup, he went with a smile. “It was disturbing that someone who has just made a decision against his country, is not devastated, but grins,” said an EU official.
The following day, Varoufakis posted a blog entry defending the referendum. “The very idea that a government would consult its people on a problematic proposal put to it by the institutions was treated with incomprehension and often with disdain bordering on contempt,” he wrote. “Can democracy and a monetary union coexist? Or must one give way?”
In Berlin, government officials noted that Schaeuble had suggested the idea of a Greek referendum back in May.
Greek officials close to the talks said negotiations could continue despite the expiry of the bailout program and the referendum. For now, though, Greek banks remain closed. Efforts to find a compromise continued, though on Wednesday Merkel showed little sign of giving ground.
EU Commission president Juncker has made plain the stakes as he sees them in a referendum. On June 29 he told a news conference: “The whole planet would take a Greek ‘No’ … to mean Greece wants to set itself apart from the euro zone and from Europe.”
He said he would ask “the Greek people to vote ‘Yes,’” advising that they should not “commit suicide.”
Global financial markets reacted mistakenly calmly to the widely anticipated Greek default, strengthening the hand of hardline euro zone partners who say Athens cannot use the threat of contagion to weaker European sovereigns as a bargaining chip.
Tsipras asked in a letter to creditors seen by Reuters to keep a discount on value added tax for Greek islands, stretch out defense spending cuts and delay the phasing out of an income supplement to poorer pensioners.
“As you will note, our amendments are concrete and they fully respect the robustness and credibility of the design of the overall programme,” the leftist Greek leader wrote.
Euro zone finance ministers were due to discuss the Greek request on a conference call at 1530 GMT, but the initial reaction from ministers and senior officials was that the letter contained elements that ministers would find hard to accept.
German Chancellor Angela Merkel said Greece had not fulfilled its obligations. She did not exclude further negotiations, but ruled out starting them while Greece heads for the referendum. “Before the referendum, no further talks on an aid programme can take place,” she said.
It was unclear whether the referendum would go ahead after Finance Minister Yanis Varoufakis indicated on Tuesday that it might be scrapped if a deal could be reached.
Although the letter from Tsipras was dated June 30, it arrived after the 19 Eurogroup ministers had ended a conference call on Tuesday evening. An EU official said it had been received around midnight, when the country’s international bailout expired when it defaulted on an IMF repayment.
“The Hellenic Republic is prepared to accept this Staff Level Agreement subject to the following amendments, additions or clarifications, as part of an extension of the expiring EFSF programme and the new ESM Loan Agreement for which a request was submitted today,” Tsipras wrote.
German Finance Minister Wolfgang Schaeuble poured cold water on hopes of a rapid breakthrough, saying the letter had come too late and it was still not clear what Greece wanted.
“That did not provide further clarity,” he said, adding that there was “no basis” for serious negotiations with Athens at the moment.
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