Greek deal still possible but door is closing

Greece’s creditors, including the ECB, have not slammed the door shut on doing a deal in the next few days as the country appeared to be rushing towards default and a euro exit.

The Athens stock exchange will be closed as the government tries to manage the fallout of the disagreement with the EU and IMF.

The ECB agreed to continue providing emergency liquidity assistance (ELA) but did not take into account the increased demand for withdrawals in the country over the weekend, which has inevitably led to capital controls being introduced for a week from today.

Last week ELA was not increased either as the feared bank run did not materialise as negotiations continued in Brussels on adjusting the details of Greece’s bailout programme to release €15.5bn over the next five months.

With €700m rather than the normal weekend withdrawals of €30bn being reported from Athens by Saturday lunchtime, no increase in ELA was the equivalent of gradually shutting off funds.

Long lines formed outside many ATMs yesterday, including some of 40 to 50 people outside outlets in central Athens. The Bank of Greece said it was making “huge efforts” to ensure the machines remained stocked.

The Greek financial stability council recommended keeping ATMs shut today and limiting withdrawals to €60 a day once they reopen tomorrow. This limit would apply to holders of Greek bank cards. Foreign card holders would be allowed to withdraw the maximum limit set by their banks.

As things worsen over the next few days, the fear is that the ECB will want to increase the collateral that it needs from Greece to match the perceived risk, which will quickly mean the country no longer qualifies for ELA, leading to a prolonged bank shutdown.

While the ECB raised the prospect of the stick, the IMF and European Commission unveiled an unexpected carrot — a readiness to continue to negotiate, according to the IMF. Commissioner Pierre Moscovici tweeted that “the door is still open for negotiations on latest Commission proposals”, adding that Greece should stay in the euro.

A separate statement from the commission stated publically, for the first time, that any deal would include addressing “future financing needs and the sustainability of the Greek debt”.

Greek Prime Minister Alexis Tsipras had made it a point of principle that he needs assurance from leaders that the debt would be at least reprofiled — something that would need to be done in the autumn to reassure the IMF that the Greek debt is sustainable at least for another 12 months.

The IMF is anxious that there by no default so it can get its money back — not just the €1.6bn due tomorrow, but the €3.4bn due next month.

Finance ministers were adamant on Saturday that the eurozone is not facing a crisis akin to the Lehman Brothers meltdown. Among the differences now in place compared to seven years ago are a banking union, a rescue fund, and the single supervisory mechanism. This will be tempered by the reality of the figures. This too may be a reason why the attitude has changed, in the message to the Greeks from Eurogroup president Jeroen Dijsselbloem, of “you can consider this, if you wish, a take it or leave it proposal”.

But nobody is taking it lightly. German Chancellor Angela Merkel has called a meeting of all party leaders in Berlin today.

Additional reporting, Reuters