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Greece, creditors dig in after debt talks founder

A woman walks past Greek flags hanging on a kiosk in central Athens on June 15, 2015. AFP PHOTO / ARIS MESSINIS

ATHENS/BERLIN: Greece and its creditors stuck to their positions on Monday after the collapse of talks aimed at preventing a default and possible euro exit, while Germany's EU commissioner said it was time to prepare for a "state of emergency."

Prime Minister Alexis Tsipras ignored pleas from European leaders to act fast. Instead he blamed creditors for the collapse of the cash-for-reform talks Sunday, the biggest setback in long-running negotiations to secure more aid for Greece.

Germany and other major creditor countries demanded that the Athens government come to its senses and offer new proposals.

"It won't work that Greece sets the terms and says 'everyone has to dance to our tune'. Greece needs to get back to reality," Volker Kauder, parliamentary floor leader of Chancellor Angela Merkel's conservatives, told ARD television.

The European Commission said it would only resume mediation efforts if Greece put forward new proposals, while the Greek government spokesman said Athens would stick to its rejection of wage and pension cuts and higher taxes on basic goods.

"We have largely exhausted our limits," Greek spokesman Gabriel Sakellaridis said.

Athens now has just two weeks to find a way out of the impasse before it faces a 1.6 billion euro repayment due to the International Monetary Fund, potentially leaving it out of cash, unable to borrow and teetering on the edge of the currency area.

Despite the deepening crisis, Sakellaridis said Tsipras was going ahead with a planned visit to Russia from Thursday, the day euro zone finance ministers hold a crucial meeting in Luxembourg to review the standoff with Greece. He is due to stay till Saturday, attend an economic forum in Saint Petersburg and meet President Vladimir Putin.

EU officials said that without improved Greek proposals by Thursday, the Eurogroup would be very tough and was likely to present Greece with an ultimatum.

"No more new proposals; take it or leave it time is upon us, I think. Or very close." one euro zone official said.

While there was little sign of public panic in Athens as Greeks held out hope for a last-minute solution - a familiar theme over the past six years as Athens has lurched from one crisis to the next - the latest impasse triggered a sell off in European and Asian shares and weighed on the euro.

"There is worry among savers and we have received phone calls but so far today we have not seen significant outflows at ATMs or branch counters," one Greek banker said.

Global financial markets suffered their first bout of significant contagion from the Greek crisis this year when bond markets across the euro zone signalled alarm. The premium investors demand to hold Spanish, Italian and Portuguese government bonds over low-risk German Bunds hit 2015 highs.

Greek stocks fell 6 percent, while banking stocks tumbled as much as 12 percent. Greek two-year government bond yields surged more than 3 percentage points to 29.02 percent.

A Reuters poll of euro money market traders put the chances of Greece leaving the euro zone this year at nearly one-in-three, higher than predicted just a month ago.

"We should work out an emergency plan because Greece would fall into a state of emergency," Germany's EU commissioner Guenther Oettinger said. "Energy supplies, pay for police officials, medical supplies, and pharmaceutical products and much more" needed to be ensured.

The chief European Commission spokesman distanced himself from Oettinger's remarks when asked whether the EU executive was pursuing such a plan, saying Commission President Jean-Claude Juncker had been very busy trying to mediate an agreement.

In Athens, Tsipras - the 40-year-old leftist leader elected on a pledge to end austerity - betrayed few signs of alarm.

Ignoring warnings from European policymakers that it was up to Athens to act now, Tsipras coolly said he was happy to wait it out till the lenders changed their minds.

"We will await patiently until the institutions accede to realism," Tsipras said in a statement to Greek newspaper Efimerida ton Syntakton. "We do not have the right to bury European democracy at the place where it was born."

He blamed "political expediency" on the part of lenders and their insistence on new cuts in pensions "after five years of looting under the bailouts" for the latest impasse.

Exasperated by what it sees as Greek distortion of the creditors' proposals, the European Commission made public for the first time comprehensive details of the latest plan, denying that the lenders were demanding specific pension or wage cuts.

Spokeswoman Annika Breidthardt said Greece and the three institutions - the IMF, Commission and European Central Bank - had agreed on budget surplus targets before debt service costs for the coming years, but there was no agreement on how Greece would achieve the goals.

The lenders argued that Greece needed to deliver annual savings of 1 percentage point of gross domestic product on pension spending, equivalent to 2 billion euros a year, while Athens only offered 71 million, or 0.04 percent, she said.

"The proposals meet the needs of the Greek people, the Greek government, but also of the other 18 (euro zone) member states," Breidthardt said. "The targets have already been lowered .. It's not a one-way street."

Tsipras was to meet his negotiating team later on Monday as

Athens continued to blame the creditors for insisting on politically unpalatable pension and wage cuts.

It says years of cuts have only made its situation worse by shrinking the economy, making it harder to pay off debt. Tsipras is insisting that debt relief must be part of any deal.

The creditors argue Greece must reform its pensions system to put state finances on a sustainable footing. They say Greek workers retire younger on average than in other European countries and collect pensions close to German levels that require unaffordable government subsidies.

"Why insist on pensions? Pensions and wages account for about 75 percent of primary spending; the other 25 percent have already been cut to the bone," IMF chief economist Olivier Blanchard wrote in a blog post.

"Just as there is a limit to what Greece can do, there is a limit to how much financing and debt relief official creditors are willing and realistically able to provide given that they have their own taxpayers to consider."

The prospect of elections or a referendum to allow Tsipras a face-saving way out of the crisis made a comeback in the Greek debate as the leftist leader faced calls from the opposition to secure a deal to avert an economic collapse.

Although some economists still believe that, as in past crises, a last-minute fix will be found to avoid default, European politicians sound more determined than before to resist compromising with demands they consider unreasonable.

Belgian Finance Minister Johan Van Overtveldt said in Berlin that the euro zone's credibility would be damaged and radical forces in other countries would be emboldened if agreements with Greece were changed.

Greek Finance Minister Yanis Varoufakis retorted in an interview with Germany's Bild newspaper that a deal could be reached quickly if Merkel took part in the talks.

"I rule out a 'Grexit' as a sensible solution," Varoufakis said. "But no one can rule out everything. I can't even rule out a comet hitting Earth."

 

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