Greece in last-ditch attempt to avoid default

Greek PM seeks aid from European Stability Mechanism to fund country for next 2 years

THE nerve-racking brinkmanship over the Greek crisis intensified last night with speculation that a last- minute deal might be hammered out before the country defaults.

While it has become a near-impossible task to nail down just what is happening as the deadline nears, it appeared that Prime Minister Alexis Tsipras had asked for aid from the European Stability Mechanism, said a statement from his office.

The request is to cover all of the country's financial needs for the next two years, along with a debt- restructuring plan.

The government will continue negotiations seeking a "viable agreement" within the euro area. The proposal did not include any of the economic reform measures European negotiators are asking for.

 

There were few details and no word on how the creditors would react, what conditions Greece wants or how large the funding would be.

There had been talk earlier in the day that Mr Tsipras was heading to Brussels for face-to-face talks with European Commission bosses on how to avoid defaulting on the country's €1.6 billion (S$2.4 billion) debt to the International Monetary Fund (IMF) due at 6pm Washington time last night (6am Singapore time today). The bailout package from the European Union expires at midnight central European time.

But a deal may still not materialise even at the 11th hour.

A spokesman for German Chancellor Angela Merkel referred to her earlier comments that she was not aware of any new offer.

Finance Minister Yanis Varoufakis has said Greece will not pay the IMF. He was even quoted by The Daily Telegraph yesterday as saying Greece could seek legal action to stop the country from being forced out of the euro zone if it fails to seal a debt deal.

If Greece misses the payment, it would push the country much closer to leaving the euro zone, particularly if it also leads the European Central Bank to cut off emergency funding for Greek banks .

Investors at least are more optimistic, with Monday's panic giving way to a measure of optimism yesterday. Markets across the region rebounded, sparking a similar trend in Europe on hopes that an acceptable deal would emerge. It will take a stronger rally to claw back the US$1.5 trillion (S$2 trillion) wiped off stock valuations globally on Monday but yesterday's uptick was a start, say market watchers.

Singapore rallied 1.13 per cent on the more upbeat mood although positive economic data and moves by funds to rev up their numbers before the second quarter closed also helped. Japan was up 0.63 per cent, South Korea gained 0.67 per cent, and Taiwan rose 0.94 per cent.

 

Chinese shares got a boost after its central bank cut interest rates and the Finance Ministry said it would allow the state pension fund to invest up to 30 per cent of its net asset value in securities. Hong Kong shares jumped 1.09 per cent, while Shanghai leapt 5.53 per cent and Shenzhen rose 4.8 per cent.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam told an Association of Banks' dinner last night that it was too early to say if some form of "Grexit" would become a reality, but it is something that euro zone markets and governments have been preparing for. He added that economic distress in Greece might give way to political and social turmoil. "Any setback in confidence could hurt a still tentative economic recovery in Europe, which will have spillover effects in the rest of the world economy."

Some analysts warn that a Grexit could lead to the political fragmentation of Europe, already struggling with a recession, geopolitical rivalry with Russia and migration issues.

Singapore permanent resident Tasos Kousloglou said: "While the Greek people shoulder part of the blame for the crisis, to use the euro to pressure Greece is a betrayal of the ideals of European unity. To reduce the situation into numbers when there is an ongoing humanitarian crisis resulting from the measures is insensitive to the suffering of the Greek people."

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A version of this article appeared in the print edition of The Straits Times on July 01, 2015, with the headline 'Greece in last-ditch attempt to avoid default'. Print Edition | Subscribe