Greek stalemate leaves Tsipras facing final offer from creditors

Greek Prime Minister Alexis Tsipras (centre) meeting the Minister of Culture, Education and Religious Affairs Aristides Baltas in Athens on June 2, 2015. -- PHOTO: AFP
Greek Prime Minister Alexis Tsipras (centre) meeting the Minister of Culture, Education and Religious Affairs Aristides Baltas in Athens on June 2, 2015. -- PHOTO: AFP

ATHENS (Bloomberg) - Greek Prime Minister Alexis Tsipras heads to Brussels for talks after finding himself boxed into a corner as creditors prepare to deliver a final proposal to end the stalemate over a financial lifeline.

After European leaders and the head of the International Monetary Fund held talks in Berlin on Monday night, creditors agreed on a document designed to avert a default that will be presented to Greece. Tsipras, who said the only plan on the table was one his government submitted, will meet European Commission President Jean-Claude Juncker on Wednesday.

Four months of sparring and missed deadlines have given way to a greater urgency to end the impasse and decide Greece's fate. While stopping short of an ultimatum, the latest twists put the onus on Tsipras's anti-austerity government to shelve some election promises or jeopardize the country's euro status.

"The need for a deal is so big, after such a prolonged liquidity crunch, that the relief for the wider public will eventually trump the cost of compromise," said George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business.

The euro rallied on Tuesday on optimism about a Greek deal, gaining 2 per cent against the dollar. Greek bonds also rose, with the yield on the two-year security falling 96 basis points to 23.9 per cent in Athens.

Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area group of his counterparts, meanwhile said an accord is still far off. German officials, who spoke on condition of anonymity, said their government was skeptical that a deal can be struck before the Group of Seven summit in Bavaria on June 7.

"As long as it doesn't meet economic conditions, we can't come to an agreement," Dijsselbloem told RTL television. "There is a misunderstanding that we should meet half way."

The deputy parliamentary leader of German Chancellor Angela Merkel's party, Ralph Brinkhaus, described the negotiating situation as "very confused."

The Monday night meeting at the German Chancellery involved Merkel, IMF chief Christine Lagarde, European Central Bank President Mario Draghi, French President Francois Hollande and Juncker of the European Commission.

The goal was to hammer out an offer from creditor institutions that Greece could consider in coming days, according to people familiar with the plan. Tsipras rejected the idea that Greece would be dictated to.

"Greece is the one that submits the plan," Tsipras told reporters on Tuesday. He then issued a statement later in the day. "The past five years of recession have been devastating for the lower and middle layers of our society. Therefore, we must move forward without the mistakes of the past. This is our main, non-negotiable position," he said.

Tsipras travels to Brussels to communicate the Greek proposal, a government official said in an e-mail to reporters. The visit is on the invitation of Juncker, the official said, asking not to be named in line with policy.

The country submitted a 47-page proposal that includes projections of a primary budget surplus of 0.8 per cent of gross domestic product this year, down from a target of 1.5 percent in April, state-run Athens News Agency reported. It includes a commitment to a surplus of 1.5 per cent in 2016, as well as introduction of three different sales-tax rates, ANA said.

Greece has said it can make a debt repayment to the IMF on Friday, though it's the smallest of four totaling almost 1.6 billion euros this month. Also in the mix is the expiration of a euro-region bailout at the end of June.

Greece is seeking to access about 7 billion euros from that existing bailout before the issue of another rescue package looms large. Sticking points have included budget measures, pension reforms and changes to Greece's labor laws, with Tsipras's Syriza party talking about red lines.

The latest correspondence is a "face-saving move" unlikely to cut much ice with the creditors, Wolfango Piccoli, managing director of Teneo Intelligence, said in a report. Their insistence on pension and labor market changes also might make it tougher for Tsipras to keep his parliamentary majority and lead to more drastic action as deposits leave banks.

"This would in turn increase the odds of a public referendum or early elections, which would also raise the chances of capital controls being imposed," he said.