Greece debt crisis talks end in renewed deadlock

Gruelling negotiations between Greece and its creditors broke up without agreement as lenders warned the country that it must accept more austerity if it is to avoid defaulting on its debts.

A third meeting of eurozone finance ministers in less than a week was called to a halt on Wednesday evening amid fresh deadlock over an agreement on greater spending cuts in Athens in exchange for rescue funds.

The finance ministers will reassemble on Thursday in a bid to achieve an elusive breakthrough, as Greece strives to meet next Tuesday’s deadline for a €1.6bn (£1.1bn) payment to the International Monetary Fund. A deal could not be reached at the finance minister’s gathering despite six hours of talks earlier in the day between Alexis Tsipras, the Greek prime minister, and the heads of the IMF, European Central Bank and European commission. Tsipras met the creditors again on Wednesday night. The meeting ended in the early hours of Thursday with Greece “remaining firm on its position” according to a Greek government official.

Tsipras got a dressing down at the creditors’ meeting on Wednesday morning, despite having presented new budget proposals on Monday that were generally welcomed as constructive. However, by the time he met the creditors on Wednesday he was being asked to toughen his plans.

Tsipras sounded bitter and wounded after the creditors, led by Christine Lagarde of the International Monetary Fund, raised a host of problems with the 11-page policy document he had tabled. A revised version of the Greek proposals, littered with corrections entered in red type by the creditors, was soon leaked to the media.

“The repeated rejection of equivalent measures by certain institutions never occurred before, neither in [bailout countries] Ireland nor Portugal,” said Tsipras. “This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed.”

Both sides are in a race to cut a deal before five years of bailouts worth €240bn (£171bn) lapse next Tuesday, the same day that Greece must repay the IMF.

The Tuesday deadline is doubly pressing because the ECB, which is keeping the Greek banking system on life support, has indicated that it will not support banks if the bailout programme expires without a new agreement in place. Without the ECB’s support Greek banks are expected to buckle, which would force the Tsipras government to impose capital controls and threaten the country’s exit from the eurozone.

Earlier in the week the Europeans had been unanimous in describing Tsipras’s offer on Monday as the first serious proposal he has delivered since he was elected in January. Senior sources in Brussels had intimated that a lifeline deal was in the offing, which would involve extending Greece’s bailout by six months, doling out €18bn to see it through this year and working on a follow-up package likely to include a form of debt restructuring – Athens’s central demand.

But by Wednesday the optimism was fading fast, as the IMF started picking holes in the Greek figures while also concluding that stopgap measures such as VAT hikes and increased pension contributions would not shift the Greek economy into recovery mode, and could worsen a debt burden that the IMF already views as unsustainable.

Athens has proposed raising more money from VAT, making more changes to the pension system, ending early retirement and raising corporate taxes.

Tsipras’s proposals would have delivered almost €8bn in reduced government spending. According to Greek state television on Wednesday, the heavily revised IMF version raised that figure to €11bn.

Most economists have already dismissed the deal being discussed as ruinous and reckless. But all the signs were that the negotiations could go almost right down to next Tuesday’s deadline. Senior German officials warned that the talks could last beyond the full two-day summit of leaders on Thursday and Friday.

The leaders instructed Jeroen Dijsselbloem, who chairs the Eurogroup of eurozone finance ministers, to work non-stop if necessary in order to secure a deal that could be presented to eurozone leaders. “[The leaders’] expectation is not to negotiate. Their expectation is to welcome an agreement in the eurogroup,” said a senior EU source.

The IMF has told Tsipras and his team that the Greek plan is too reliant on tax increases, which have failed to deliver anticipated revenue streams in the past. The fund has also criticised what it sees as only half-hearted measures to reform the Greek economy by tearing down hundreds of regulatory barriers.