Greece is racing to meet a deadline to tell its creditors exactly what it’s willing to do in return for another huge bailout. At stake is Greece’s future in the euro.
European leaders gave Greek Prime Minister Alexis Tsipras an ultimatum earlier this week: Convince us by Sunday that you’re serious about putting Greek finances in order and reforming the economy, or you’re out of the euro.
European officials need to receive his detailed proposals by midnight Thursday (6 pm ET) so they have time to scrutinize them before Sunday’s emergency summit of EU leaders.
Without a deal Sunday to start formal negotiations on a third Greek bailout since 2010, the country will be bankrupt.
The European Central Bank would be forced to cut off funds that are keeping Greek banks on life support, and the Greek government would have to start issuing IOUs to pay pensions and wages.
In those circumstances, Greece would have little choice but to start printing its own money — and become the first euro member to drop out of the 16-year old currency union.
Greece wrote to Europe’s bailout fund Wednesday, formally requesting a new three-year loan. It didn’t say how much it needs, but it will be at least 50 billion euros — according to the International Monetary Fund — and probably much more.
The Greek government promised to implement — as early as next week — changes to taxation and pensions, and a comprehensive program of other unspecified reforms “to further strengthen and modernize its economy.”
It also said it wanted to explore how to make its enormous debt “sustainable and viable” as part of broader discussions.
Officials now need to see the details. Other eurozone countries are deeply skeptical about Greece’s commitment to reform, given years of foot dragging and Tsipras’ rejection — backed up by a huge popular vote last weekend — of the most recent offer of help.
Both sides say they want the same thing: Greece in the euro. But it’s going to be tough to get agreement.
The terms of a new bailout are likely to be even harsher than those Greece has already rejected, largely because the black hole in its finances grows with each passing day without a deal.
Its banks are shut, cash withdrawals are capped and economic activity is slowly grinding to a halt.
EU leaders are desperate to keep the euro together. It’s the most visible symbol of 60 years of economic and political integration. They worry about the fate of Greece if it collapses — the humanitarian and geopolitical cost.
But they also worry about long term damage to the credibility of the euro. Unlike the U.S. dollar, the euro is not backed up by a single country or government with authority to move money around in times of crisis.
Instead, it depends on all 19 countries that use the euro playing by the rules on borrowing, and bailouts. Allowing one member to break the rules year after year could be fatal.
Other countries using the euro have poured billions into Greece, and resist fiercely any suggestion that some of that debt should be written off. Then there’s the precedent that would set: Portugal and Ireland, for example, met the terms of their bailouts but still owe billions in emergency loans. They could argue for the same treatment.
Germany’s economy minister, Sigmar Gabriel, spelled out the danger of giving special treatment to Greece.
“That would be the end of the euro,” he told reporters on Monday.