ECB set for emergency talks as 'Grexit' looms

AFP , Sunday 28 Jun 2015

European Central Bank
The illuminated euro sign is seen in front of the headquarters of the European Central Bank (Photo: Reuters)

The European Central Bank was set to hold emergency talks Sunday on whether to continue its financial lifeline to Athens, as France warned there was a "real risk" of a Greek exit from the euro.

After talks in Brussels broke down in acrimony Saturday between Athens' left-wing leaders and the rest of the eurozone, Greece hurtled toward default with its EU-IMF creditors, left solely reliant on emergency cash from the ECB.

Time was of the essence after scenes of anxious Greek citizens queueing at cash machines -- fearing that capital controls may be introduced -- and the horror scenario of a Greek exit from the euro is expected to unsettle global financial markets Monday morning.

Hopes were slim that ECB chief Mario Draghi and the Governing Board, who were set to hold a telephone conference, would keep cash-starved Greece on financial life support, which was so far based on hopes Greece would reach a deal.

"There is no reason to give more money," said a source close to the negotiations on Saturday. "The ECB will suspend ELA tomorrow, it's clear," the source said, referring to the so-called Emergency Liquidity Assistance.

French Prime Minister Manuel Valls warned of a "real risk" of Greece leaving the eurozone if the Greek people vote against the EU's bailout proposals in a referendum next weekend.

Voicing hopes that a "deal is still possible" with Athens, he said of the independent ECB: "I don't think they can cut off the lifeline. It's the Greek people who are suffering."

Draghi -- who pledged in 2012 to do "whatever it takes" to save the euro -- has insisted that solving the Greek crisis is up to politicians, not central bankers, and faces EU rules that bar the ECB from directly financing a eurozone government.

For the past five months of tortuous negotiations between creditors and Greek Prime Minister Alexis Tsipras, it was the cash drip of the Frankfurt-based ECB that has kept alive Greek banks and the state.

But since Saturday Greece has looked headed into the uncharted -- and likely turbulent - waters of the long dreaded "Plan B".

Everything changed after Tsipras stunned Europe with a surprise call for a July 5 referendum on the latest cash-for-reforms package and passionately advised voters against backing a deal that spells further "humiliation".

Exasperated eurozone members -- who suspected yet another reckless play for time -- refused to extend the EU's critical financial lifeline beyond a Tuesday deadline, freezing the final tranche of bailout cash.

This will almost certainly mean Greece will default on more than 1.5 billion euros ($1.7 billion) due to the International Monetary Fund on Tuesday.

IMF chief Christine Lagarde said the Washington-based fund also will close off the money tap in response to what would be the first ever default by an advanced economy.

Lagarde, speaking to the BBC overnight, voiced the slimmest of hopes that disaster could be averted, quoting German Chancellor Angela Merkel who has repeated, mantra-like, that "where there's a will, there's a way".

But many believed that -- after marathon discussions, several rounds of "final crunch talks", and much political theatre -- Saturday was likely the tipping point into a far deeper crisis, not foreseen in the eurozone's rule book.

"June 27, 2015 will probably go down in history as the day the European Monetary Union lost a member for the first time," said Germany's Handelsblatt business daily. "Greece's fate seems to be finally sealed this Saturday."

Greek parliamentarians late Saturday voted in favour of the referendum, which will ask Greeks to say "yes" or "no" to the measures submitted by creditors to Athens on Friday.

Lagarde pointed out that, given that EU lending will have stopped, "at least legally speaking, the referendum will relate to proposals and arrangements that are no longer valid".

Tsipras told parliament he was confident "the Greek people will say an emphatic no to the ultimatum" by EU-IMF creditors, but "a big yes to European solidarity".

For Tsipras, the austerity has spelled a "humanitarian catastrophe" for his country of about 11 million people, which has endured five years of recession, turmoil and skyrocketing unemployment.

A grim-faced Eurogroup president Jeroen Dijsselbloem said "it was not us who walked away from the talks, it was the Greek government that walked away".

The focus now will be on quarantining Greece and containing the fallout for the other 18 members amid fears of "contagion" on markets.

EU heavyweights Germany and France insisted Saturday that Greece would remain inside the eurozone, and Germany's Finance Minister Wolfgang Schaeuble said "we will do everything to fight against any possible danger of contagion".

Schaeuble has long bitterly resisted Greek "blackmail" and hopes that insisting on eurozone rules will strengthen the core group.

Merkel, long Europe's champion of austerity and tough reforms in exchange for cash, has been trying to keep Greece in the euro -- with commentators saying she fears for her legacy if she presides over a eurozone break-up.

German opposition groups have urged Merkel to act to prevent turmoil.

"Chancellor Merkel must step in now," said the far-left Linke party, asking for the aid programme to be extended. "The fate of Europe lies in her hands."

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