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War of words over Greece bailout

Published 17/06/2015

Greece could face exit from the EU if a bailout deal is not secured
Greece could face exit from the EU if a bailout deal is not secured

Greece and its creditors publicly blamed one another for an impasse in bailout talks on the eve of a eurozone finance ministers' meeting billed as key to their outcome.

Greek Prime Minister Alexis Tsipras lashed at rescue lenders for demanding pension cuts, and got support from thousands of Greeks who hit the streets in Athens to protest against any further austerity measures.

"If Europe insists in this incomprehensible option - if its political leadership insists - then they must bear the cost of developments that will not be beneficial for anyone in Europe," he said after meeting Austrian Chancellor Werner Faymann in Athens.

Greece needs to get more loans from its creditors before June 30, when its bailout program expires and it is scheduled to make a 1.6 billion euro (£1.1bn) debt repayment to the International Monetary Fund.

European Union officials said they have already made major concessions, dropping a budget surplus target from 3% to 1% this year.

Athens still needed to come up with a more realistic plan, EU Commission Vice President Valdis Dombrovskis said.

"It is important that the Greek side actually not only communicates what they do not want to do, but also what they do want to do," he said.

Markets continued to react badly to the news on the talks. The Athens Stock Exchange's main index sank another 3.2%, while the yield on Greece's two-year bond has soared above 30%, a sign investors are more worried about a default.

Also today, Greece's central bank issued a dramatic warning in its annual report that, without a deal, the country would face "deep recession (and) a dramatic decline in income levels" that would drive it from the euro bloc and even the EU.

Mr Dombrovskis conceded the EU would consider "less favourable scenarios" when asked about a possible Greek exit, or "Grexit."

Berenberg analyst Holger Schmieding said the Grexit risk has increased from 30 to 40%.

"With every semi-deadline that Greece misses and with every rude word that the Greek radicals hurl at their creditors, the damage already done to Greece gets worse," he said in a note. "That, in turn, makes it more difficult for lenders to negotiate and ratify a new deal."

Tonight 7,000 people took part in a peaceful anti-austerity protest outside Parliament in central Athens, attended by senior members of the governing Syriza party. A smaller rally was held in the northern Greek city of Thessaloniki.

Economists disagree over how bad a Grexit would be for the rest of Europe. Many say the region's defences against market turmoil have improved in recent years, while others note that nobody really knows what the impact might be - and that uncertainty can be dangerous.

Lenders want Greece to further cut defence spending and massive pension fund subsidies, and raise more money in sales taxes.

Jeroen Dijsselbloem, president of eurozone finance meetings, described the chances of a breakthrough tomorrow as "very small."

Mr Tsipras' five-month-old left-wing government wants new terms for its bailout programme after previous administrations imposed draconian spending cuts and tax increases for five years.

Those austerity measures helped reduce the public deficit but ravaged the economy and made most Greeks poorer.

An advisory committee set up in parliament by members of the government said it had recommended the non-payment of any remaining bailout debt, describing it as "illegal, illegitimate, and odious."

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