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Eurozone tells Greece: It’s over on Sunday without a deal

Juncker (l.) and Tusk warned that the day of reckoning for Greece would be on Sunday.Juncker (l.) and Tusk warned that the day of reckoning for Greece would be on Sunday.
Juncker (l.) and Tusk warned that the day of reckoning for Greece would be on Sunday.Mario Salerno © Council of the EU

The Eurozone gave Greece until Sunday to come up with a new plan to save itself from bankruptcy or else get ready to leave Europe’s currency union.

The developments bring the first major reversal of European integration in 60 years a huge step closer, threatening to push crisis-stricken Greece into a chaotic reintroduction of its national currency, in a move that would be sure to wipe out the savings of millions and risk a painful cycle of devaluation and inflation.

At a fraught summit in Brussels, leaders from the members of the E.U.’s monetary union told Greek Prime Minister Alexis Tsipras that he had till Thursday to present a detailed plan for a new bailout package, and that this needed to be agreed at another summit meeting on Sunday if what they called the “black scenario” is to be avoided.

“We have a ‘Grexit’ scenario prepared in detail,” European Commissioner Jean-Claude Juncker told a press conference, in an abrupt departure from the habits of the last five years, when it has been an article of faith for European leaders to swear that monetary union was forever.

“I’m strongly against Grexit but…I can’t prevent it if the Greek government is not doing what we expect the Greek government to do,” Juncker said.

The new turn comes two days after Greeks voted emphatically to reject the terms that the creditors were asking in return for further financial assistance. However, leaders indicated that the Greeks would now need to accept harsher terms than the ones they had rejected if they want a new bailout program. Given that the referendum failed by a margin of nearly two-to-one, it seems Greek Prime Minister Alexis Tsipras will struggle to persuade Greeks to accept that.

German Chancellor Angela Merkel told a press briefing that the government would have to make clear how it intends to return Greece to economic health, saying this would require additional “structural measures.” She ruled out any question of writing off a part of the loans that Germany or others had made to Greece since 2010, while Juncker suggested that the creditors would be prepared to consider lightening the debt burden in October, by extending th, e loan maturities well into the future–assuming Greece was still playing ball by then.

The summit on Sunday will include all 28 members of the E.U., rather than just the Eurozone. Juncker, who runs the E.U.’s powerful secretariat in Brussels, said this was because what happens in Greece would have an impact on countries such as Romania and Bulgaria, which aren’t yet members of the Eurozone. Greek banks own substantial parts of those countries’ banking systems, and the authorities are concerned about how to limit spillovers if the Greek financial system collapses.

“The situation is really critical and we can’t exclude the black scenario,” said Donald Tusk, the E.U. Council President who coordinates the inter-governmental side of E.U. affairs.

Merkel swatted away questions about a possible bridge loan to Greece until a longer-term fix can be arranged.

“First come the long-term proposals, then the readiness to talk about short-term measures,” Merkel said, noting that the Greek government will face a requirement for “prior actions” to be executed first.

She said the leaders hadn’t discussed how much money Greece would need over the last two years. Tsipras had said €29 billion last week, while the IMF put the figure at closer to €50 billion.

Austrian Chancellor Werner Faymann noted that the timetable to cobble a deal together between now and next week “seems very, very ambitious.” Greece had arrived at the talks Tuesday without any new proposals on how to proceed, and the government has lost political capital and many potential sympathisers in the Eurogroup with such issues.

However, Faymann said Tsipras had appeared “calm, constructive and balanced” in the talks.

“I can only say that he gave the impression he thinks he is able to present something by Thursday, Faymann said.

It wasn’t immediately clear why the lenders had insisted on this Sunday as a final deadline. The natural ‘hard’ deadline for talks is the following week, when Greece has to repay €3.5 billion that it doesn’t have to the European Central Bank. As things stand, they have left themselves a full week to work on the finer points of a deal if they come up short this weekend.