Euro zone argues into the night with Greece on bailout terms

Reuters

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Youths hold a placard that reads 'Do we stay in Euro?' during an anti-austerity protest in central Athens, Greece, July 12, 2015. Youths hold a placard that reads 'Do we stay in Euro?' during an anti-austerity protest in central Athens, Greece, July 12, 2015.

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Euro zone leaders argued late into the night with near-bankrupt Greece at an emergency summit, demanding that Athens enact key reforms this week to restore trust before they will open talks on a financial rescue to keep it in the European currency area.
Leftist Prime Minister Alexis Tsipras was told to push legislation through parliament to convince his 18 partners in the euro zone to release immediate funds to avert a state bankruptcy and start negotiations on a third bailout program estimated at up to 86 billion euros ($95.5 billion).
Six sweeping measures including tax and pension reforms must be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, a draft decision by Eurogroup finance ministers sent to the leaders showed.
The document included a German proposal to make Greece take a "time-out" from the euro zone if it fails to meet the conditions. But a senior EU source said the idea was illegal and would be dropped from the summit statement if Tsipras accepted other deeply unpalatable terms.
Tsipras said on arrival in Brussels he wanted "another honest compromise" to keep Europe united.
But German Chancellor Angela Merkel, whose country is the biggest contributor to euro zone bailouts, said the conditions were not yet right to start negotiations, sounding cautious in deference to mounting opposition at home to more aid for Greece.
"The most important currency has been lost and that is trust," she told reporters. "That means that we will have tough discussions and there will be no agreement at any price."
If Greece meets the conditions, the German parliament would meet on Thursday to mandate Merkel and Finance Minister Wolfgang Schaeuble to open the talks on a new loan. Then Eurogroup finance ministers could meet again on Friday or at the weekend to formally launch the negotiations.
As the marathon summit dragged into early Monday morning, with breaks for private meetings between Tsipras and the French, German and EU leaders, markets in Asia-Pacific marked the euro down and bought safe-haven bonds. The absence of deal in Brussels also hit pre-market trading in the United States.
EU officials said the biggest of several sticking points was Germany's insistence that Greek state assets worth 50 billion euros be placed in a trust fund in Luxembourg to be sold off with proceeds going directly to pay down debt. The EU says experts evaluate Greek assets earmarked for privatization at just 7 billion euros.
One diplomat said that was tantamount to turning Greece into a "German protectorate", stripping it of more sovereignty.
Another diplomat said Merkel had declared the matter a "red line" for Germany and insisted that the International Monetary Fund be fully involved in any third bailout for Greece, despite resistance from Athens.
Tsipras, for his part, was insisting on a stronger commitment by the creditors to restructure Greek debt to make it sustainable in the medium-term.
An EU official said several options were being discussed to give Greece bridging funds once it passed the laws, including releasing European Central Bank profits on Greek bonds, tapping an emergency fund run by the European Commission, or bilateral loans from friendly countries such as France. Two official French sources denied that any bridging loan was planned.
Finance ministers said Greece needed 7 billion euros of funding by July 20, when it must make a crucial bond redemption to the European Central Bank, and a total of 12 billion euros by mid-August when another ECB payment falls due.
Some diplomats questioned whether it was feasible to rush the package through the Greek parliament in just three days. Tsipras is set to sack ministers who did not support his negotiating position in a vote last Friday and make dissident lawmakers in his Syriza party resign their seats, people close to the government said.
Temporary Grexit?
Several hardline countries voiced support for the German proposal that Greece take a five-year "time-out" from the euro unless it accepted and implemented swiftly much tougher conditions.
But French President Francois Hollande, Greece's strongest ally in the euro zone, dismissed the notion, saying it would start a dangerous unraveling of EU integration.
Talks among the currency zone's finance ministers turned into what one participant called "a kindergarten" before they were suspended without agreement at midnight on Saturday, resuming more calmly on Sunday morning after the French and German ministers met privately to clear the air.
At one stage in the debate on Greece's debt sustainability, Germany's Schaeuble snapped at ECB President Mario Draghi: "I'm not stupid," a person familiar with the exchange said. Schaeuble also clashed with the head of the euro zone bailout fund, Klaus Regling, on whether the EU treaty conditions for an emergency loan were fulfilled, another source said.
Those rules say there must be "a risk to the financial stability of the euro area as a whole or of its Member States".
Greeks see humiliation
Greece's new finance minister, Euclid Tsakalotos, was silent in public but the reaction among some lawmakers in Tsipras's radical leftist Syriza party, still smarting from having to swallow austerity measures they had opposed, was furious.
"What is at play here is an attempt to humiliate Greece and Greeks, or to overthrow the Tsipras government," said Dimitrios Papadimoulis, a Syriza member of the European Parliament.
With banks shuttered for two weeks, cash withdrawals rationed and the economy on the edge of an abyss, some Greeks vented their anger on Merkel and Schaeuble.
"The only thing that I care about is not being humiliated by Schaeuble and the rest of them" said Panagiotis Trikokglou, a 44-year-old private sector worker in Athens.
Greece has already had two bailouts worth 240 billion euros from euro zone countries and the International Monetary Fund, but its economy has shrunk by a quarter since the crisis began, unemployment has soared above 25 percent and one in two young people is out of work.
Athens defaulted on an IMF loan repayment last month and faces state bankruptcy if it cannot make the bond redemption on July 20, which would likely force the ECB to cut emergency funding for Greek banks.
Economists said the idea of a temporary exit would mean in practice ejecting Athens from the European monetary union.
Paul De Grauwe, a Belgian economist at the London School of Economics, compared it to a couple having a trial separation.
"Temporary Grexit is like temporary divorce. Most if not all end up being permanent," he said in a Twitter message.
The United States has added its voice to calls for a deal this weekend, concerned at the geopolitical consequences if Greece were to be cut loose and become a failed state in economic terms in the fragile southern Balkans, adjoining the Middle East.

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