Greece, euro zone fail to reach agreement

Both sides play down setback even though they failed to agree on a joint statement even

The European Central Bank raised pressure on Greece on Thursday to extend an international bailout deal or risk a bank collapse, as new leftist Prime Minister Alexis Tsipras told EU leaders austerity is killing his economy and they must find an alternative.

After euro zone finance ministers failed to agree on a joint statement on the way forward on Greece’s debt crisis, the ECB’s Governing Council held a short-notice teleconference to discuss how long it could continue to keep Greek banks afloat.

The ECB declined comment, but two sources familiar with the matter said it concerned the provision of Emergency Liquidity Assistance (ELA) by the Greek central bank, which the ECB authorised as a temporary expedient when it stopped accepting Greek government bonds in return for funding last week.

Arriving for his first European Union summit, Tsipras told reporters: “I’m very confident that together we can find a mutually viable solution in order to heal the wounds of austerity, to tackle the humanitarian crisis across the EU and bring Europe back to the road of growth and social cohesion.” Chancellor Angela Merkel, vilified by the Greek left as Europe’s “austerity queen”, said Germany was prepared for a compromise and finance ministers had a few more days to consider Greece's proposals.

“Europe always aims to find a compromise, and that is the success of Europe,” she said on arrival in Brussels. “Germany is ready for that. However, it must also be said that Europe’s credibility naturally depends on us respecting rules and being reliable with each other.”

Merkel was due to meet Tsipras privately on the sidelines of the one-day informal EU summit. Other leaders said it was up to Greece to respect budget discipline and economic reform commitments made by previous governments if it wanted continued aid.

ECB executive board member Peter Praet said the ECB would apply its existing ELA rules to Greece. “It is key that the banks benefiting from emergency liquidity assistance remain solvent,” he told the Financial Times.

His comments appeared to signal that the central bank could cut the cash lifeline if Greece failed to reach a deal with its creditors before the Euro 240-billion bailout expires at the end of this month, exposing Greek banks to a risk of capital flight and collapse. Analysts say that in turn could trigger a Greek exit from the euro zone, potentially causing wider financial turmoil.

Highlighting the precariousness of Greece's position, tax revenues fell about Euro 1 billion short of the budget target in January as Greeks held off payments before the January 25 election, anticipating that the new leftist government would scrap an unpopular property levy.

Short shrift

Euro zone finance ministers in the Eurogroup will try again on Monday to bridge their differences, but at Greek insistence, there will be no preparatory talks between officials from Athens and the European Commission, the IMF and the ECB. Tsipras has vowed no longer to cooperate with the "troika" of lenders.

A Greek official said the hard left Syriza party leader, elected on a tide of public anger against austerity last month, was determined to put the Greek crisis at the centre of the Brussels summit. However other EU officials said it would be largely devoted to the conflict between Ukraine and Russia.

Merkel and French President Francois Hollande flew in from Minsk after brokering an uncertain ceasefire in Ukraine in overnight talks with Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko.

Greek Finance Minister Yanis Varoufakis refused to sign up to a joint statement at Wednesday's Eurogroup meeting because it referred to the bailout and its continuation, he said.

"Hung up on wording"

The Greek official accompanying Tsipras sought to depict the difference as largely semantic, saying: "We will try to reach an agreement and explain that we shouldn't get hung up on wording." Playing down the threat to the banking system if creditors cut off funding after Feb. 28, the official said: "If we have a conclusion that says there is a programme in place, or if we are close to an agreement, no liquidity problems will exist." The euro zone, led by Germany, but also the ECB and IMF, are insisting on firm conditions for any "bridge" financing. Other governments, including Ireland, Portugal and Spain, which have had to seek help under tough conditions, are also keen their own voters do not see Tsipras winning a better deal than they did.

EU officials play down the risk of Greece being forced out of the euro zone, something Tsipras and most Greeks do not want and which could send destabilising ripples across the bloc as it faces a confrontation with Russia over Ukraine.

However, the politics of the Greek debate are difficult.

"The real risk in Athens seems to be that Tsipras has raised expectations to such an extent that he could find it extremely difficult to back down from his rhetoric and strike a deal which the rest of the Eurozone could accept," Berenberg Bank economists wrote in a note on Thursday