Greece talks crumble after 45 minutes, setting up decision week

Last-ditch negotiations in Brussels between Greece and its creditors collapsed after just 45 minutes on Sunday, setting up a week that could decide the fate of Europe’s most indebted country.

The euro dropped as the European Commission said the talks had broken up with the divide between what creditors demanded and what Greece was prepared to do unbridged. The focus now shifts to a June 18 meeting in Luxembourg of euro-area finance ministers, known collectively as the Eurogroup, that may become a make-or-break session for Greece’s ability to avert default.

“While some progress was made, the talks did not succeed as there remains a significant gap,” the commission said in a text message. “On this basis, further discussion will now have to take place in the Eurogroup.”

The latest failure to find a formula to unlock as much as $8.1 billion in aid for the anti-austerity government of Prime Minister Alexis Tsipras was accompanied by warnings about the risk of Greece’s exit from the 19-nation euro.

“The shadow of a Greek exit from the euro zone is becoming increasingly perceptible,” German and Vice Chancellor and Economy Minister Sigmar Gabriel wrote in an op-ed to be published in Bild newspaper on Monday. “Greece’s game theorists are gambling the future of their country. And Europe’s too.”

More than four months after he was swept into office on a wave of public discontent about budget cuts that deepened a six- year Greek recession, Tsipras has refused to meet the demands of the euro area and the International Monetary Fund. The core points of contention are pension cuts, tax rises and targets for a budget surplus before interest payments, known as a primary surplus.

Tsipras had sent a delegation to Brussels with proposals to narrow the differences. The commission, the European Union’s executive arm, said the weekend talks were President Jean-Claude Juncker’s “last attempt” to reach a compromise.

“The Greek proposals remain incomplete,” the commission said after Sunday’s session ended. The gap between the parties on fiscal measures needed is “in the order” of 2 billion euros annually, according to the commission.

The euro was down 0.4 percent to $1.1219 in early trading on Monday in New Zealand.

The Greek government blamed the euro area and the IMF, which together finance Greece’s 240 billion-euro rescue program first drawn up in 2010, for sticking with demands that it says are economically senseless and politically unacceptable.

Greece’s creditors insisted that the difference between the two sides on the size of the primary surplus needed to be covered entirely by pension cuts and increases in value-added tax, Greek Deputy Prime Minister Yannis Dragasakis said in an e-mailed statement on Sunday. He was part of the Greek delegation in Brussels for talks that began Saturday afternoon and ended with the curtailed meeting on Sunday.

As those deliberations were taking place, lawmakers from across the political divide in Germany, the biggest country contributor to Greece’s bailout, united to issue the most explicit warnings yet that Greece is at risk of exiting the euro.

“A Grexit must be factored in if the Greek government doesn’t do what it’s long been called upon to do,” Michael Grosse-Broemer, the parliamentary whip for Chancellor Angela Merkel’s Christian Democratic-led bloc, said in a ZDF television interview on Sunday.

Wolfango Piccoli, managing director at Teneo Intelligence in London, said the persistent stalemate in the Greek-aid negotiations raises the chances both of a final offer to Greece from its creditors and of capital controls in the country, where bank deposits have been shrinking for months amid uncertainty about whether Greece can keep paying its bills.

“The continued lack of progress increases the likelihood that at its Luxembourg meeting on June 18, the Eurogroup may issue a take-or-leave deal with an ultimatum attached,” Piccoli said in research note on Sunday. “In contrast to a negotiated agreement, this would likely entail only very few concessions to Athens. This scenario, in turn, decreases the probability of Tsipras being able to accept the offer, while raising the risk of capital controls.”