German Chancellor Angela Merkel dismissed a bid for aid by Greece hours before its bailout expires and a payment deadline to the International Monetary Fund passes.
While Merkel rejected talks before a July 5 referendum called by Greek Premier Alexis Tsipras on further budget cuts, euro-area finance ministers signaled the deadlock may be thawing and, as capital controls bite, Greece may be wobbling.
“We’ll negotiate about absolutely nothing before the planned referendum is held,” Merkel told reporters in Berlin.
The exchange between the chief antagonists in the latest chapter of the crisis saga marked the final hours before Greece staggers into the economic unknown.
The Greek vote, which leaders in Berlin and Paris have labeled a decision on remaining in the euro, could also determine whether the European Central Bank withdraws its emergency loans. That would decimate the economy.
“A ‘no’ in the referendum would make it almost impossible for the IMF and for Europe to provide support for Greece beyond what would de facto be humanitarian relief,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Greece would then have to issue IOUs as a first step to a Grexit.”
Tsipras’s plan would cover all the country’s financing needs for two years. It failed to include any economic-reform measures and proposed a restructuring of its crushing debt load, spelling its likely rejection.
Euro-area finance ministers, who discussed the plan in a conference call, will examine it on another teleconference at 5 p.m. Brussels time Wednesday. Their comments suggested they were open to compromise, though stuck by opposition to debt relief and demands for economic reform.