European finance ministers told Greece on Sunday it needs to start implementing economic reforms if it wants to stave off default and a possible exit from the eurozone.
“The most important currency has been lost and that is trust,” Germany’s Angela Merkel, who leads the euro area’s largest economy, told reporters as she arrived for a crisis summit in Brussels.
Government leaders were due to take up their finance ministers’ recommendations who met for nine hours on Saturday to discuss Greece’s application for a new three-year loan.
Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting, told leaders there was “not yet the basis to start the negotiations on a new program.” He advised the Greek parliament to enact reforms to prove its plans weren’t just empty promises.
Trust in Greece’s sincerity has been lacking since the far-left Alexis Tsipras came to power in January. Elected on vows to end austerity, he canceled privatizations and labor reforms Greece had enacted to qualify for a total of €240 billion in financial support from other European countries.
In negotiations for another bailout, Tsipras has constantly walked back on commitments his predecessors made, infuriating especially hardline creditor states like Germany which see the reforms as crucial to avoid another Greek debt crisis in the future.
According to Dijsselbloem, the Balkan country needs €7 billion by the end of next week to make crucial bond redemptions to the European Central Bank and another €12 billion by the middle of August.
Greek banks are already short of cash. Capital controls were imposed after Greece failed to make a €1.5 billion repayment to the International Monetary Fund last month. Should it fail to pay back the ECB as well, the bankers in Frankfurt will have little choice but to pull the plug, plunging Greece into an even deeper financial crisis and likely triggering its ejection from the eurozone.
Polls show a majority of Greeks want to keep the euro. But 60 percent also voted down austerity in a referendum last week.
Despite the overwhelming “no” vote, which was seen in many other European countries as a rejection of the rules that underpin the currency union, Tsipras submitted a list of proposed reforms to lenders that was largely similar to the plan he had dismissed as “absurd” before the referendum.
Eurozone finance ministers now want Greece to go further and streamline the sales tax system, broaden the tax base, make its pension system more affordable, privatize electricity transmission and overhaul bankruptcy laws.
Sales taxes and pensions were among the main sticking points in talks before the referendum. Greece resisted higher taxes at the time, especially for basic consumer goods and its remote islands (which have a special rate) and refused to phase out a “solidarity grant” for poor pensioners.
With nearly one out of four Greeks unemployed, pensions are the main source of income for many households. Tsipras’ administration wanted to reintroduce a thirteenth month of pension payments instead of making cuts.
Merkel’s hawkish finance minister, Wolfgang Schäuble, suggested on Saturday that Greece could take a five-year pause from the euro. But this proposal was rejected by French president François Hollande. “There is no such thing as temporary Grexit,” he said. “There is only a Grexit or no Grexit.”
Finance ministers also insisted that inspectors from the three institutions that would monitor another bailout — the ECB, the European Commission and the IMF — are allowed back in Athens to make sure Greece follows through on its commitments.
Tsipras’ government previously kicked out inspectors of the “troika” and vowed not to subject Greece again to the “humiliation” of having its books reviewed.