Talks between Greek prime minister Alexis Tsipras and distrustful European leaders have dragged past a self-imposed weekend deadline without an agreement that would give Greece a financial rescue package.
German chancellor Angela Merkel is demanding tough conditions before releasing more cash to Greece, while French president Francois Hollande is calling for unity among the countries that use the euro.
As a result, he said a deal that would secure Greece’s future in the euro won’t be clinched at Sunday’s meetings in Brussels, first of the eurozone’s 19 finance ministers and then of its leaders.
“In case no agreement could be reached, Greece should be offered swift negotiations on a timeout from the euro area, with possible debt restructuring”, said a draft text.
But, highlighting divisions between the two most influential nations in the currency union, French President Francois Hollande, Greece’s strongest ally in the eurozone, dismissed the notion, saying it would start a unsafe unraveling of EU integration. “There is only Grexit or not Grexit”.
Many European officials have spoken of a complete loss of trust in Athens because of its negotiating tactics, including a decision late last month to break off talks in favor of holding a public referendum in Greece on austerity.
The deal calls for Greeks, already reeling from harsh measures and economic decline, to cut back even further in exchange for more loans without which its financial system would surely collapse.
The crisis has exposed tensions between the eurozone’s two biggest powers with pro-austerity Germany going head to head with France, which has been the country most supportive of Greece during the crisis.
Speaking after an agreement to start bailout negotiations with Greece, Ms Merkel said the eurozone “is prepared, if it becomes necessary, to take additional measures” to ease Greece’s debt burden.
Its banks have been shut for two weeks, and cash withdrawals are capped.
Muscat said there was no unanimity among the leaders over whether to give Greece the bailout or not.
“What is at play here is an attempt to humiliate Greece and Greeks, or to overthrow the Tsipras government”, said Dimitrios Papadimoulis, a Syriza member of the European Parliament.
European sources said the meeting of finance ministers, known as the Eurogroup, was still continuing as leaders arrived for the summit.
The decision shocked European leaders who thought they were nearing a deal.
Finnish Prime Minister Juha Sipila denied his government had been on the verge of collapse over disagreements on a Greek bailout among coalition members.
Second, there was a complete breakdown in trust between Greek Prime Minister Alexis Tsipras and other European leaders.
The parties now are simply trying to find a formula for emergency funding that will maintain the solvency of the Greek banks, plus enough liquidity to ensure that the ATMs do not run dry – even with the current capital controls being maintained in place.
His government has proposed reforms it would carry out in return for the new bailout, but eurozone finance ministers have determined that the plan needs to be “seriously strengthened”, according to a copy of their recommendations to the summit seen by dpa.
Greece’s proposals for a new bailout, backed by parliament, are aimed at offering to bring in tax rises and spending cuts in return for another loan.
The Greek government has made getting some form of debt relief a priority and hopes that a comprehensive solution will involve European creditors at least agreeing to delayed repayments or lower interest rates.
Tsipras argues that because of these concessions Monday’s deal is, despite the tough austerity, actually better for Greece than the proposals Greeks voted down just a week ago.
Greek debt stands at around €320bn – a staggering 180% or so of the country’s annual gross domestic product.
Its creditors said they would help Greece in the short term to repay its debts since a full agreement on the third bailout still lies ahead.
There is a high chance that the new bailout would reach £52 billion over Greece’s £229 billion debt, which is not sustainable as the country admits.