EU leaders set deadline to Greece

Tuesday's summit had been coined as "last chance talks" but it now appears that this has been bumped to Sunday.

"Until now I have avoided talking about deadlines," said the president of the European Council, Donald Tusk, "but tonight I have to say it loud and clear that the final deadline ends this week."

Tusk had convened the leaders of eurozone countries to discuss Greece, which is on the verge of bankruptcy. At the special summit, leaders agreed that Athens would present a new request for a bailout program on Wednesday, July 8, 2015, with a detailed proposal to follow on Thursday.

For Sunday, a further summit will be convened - this time one bringing together not just the 19 leaders of eurozone countries, but of all 28 EU member states.

"We can't exclude that there is no agreement until Sunday," said Tusk, "and that means we need to discuss the consequences for the whole European Union, not just the eurozone."

"In case there is no agreement, we will have to discuss humanitarian aid," said Austria's chancellor Werner Faymann, "and that requires the presence of all members of the European Union because this aid would come from common funds."

"Still no basis for starting negotiations"

Prior to the summit, it had been expected that the newly-appointed Greek finance minister Euclid Tsakalotos would present a request for financial assistance coming from the eurozone's permanent bailout fund (European Stability Mechanism, ESM), to his colleagues assembled in the eurogroup.

But that was not the case, causing unnerved reactions from leaders arriving for the meeting.

"We still don't have a basis for starting negotiations within the framework of the ESM," said German Chancellor Angela Merkel.

"One would have expected the Greek government to come with some sort of proposal to today's Eurogroup meeting," Maltese Prime Minister Joseph Muscat vented angrily, adding that it looked likely that the summit would be "a waste of time."

A "sincere debate" on a complicated process

But according to Merkel, the summit produced "a very sincere debate."

What was needed now, Merkel stressed, was of a much bigger scope than that discussed before Greece broke off negotiations for a continuation of a second bailout program, which expired on June 30.

While the former bailout programs for Greece had been adopted within the temporary framework of the European Financial Stability Facility, or EFSF, a new program would have to be within the framework of the permanent bailout fund, ESM.

There are considerable barriers to tapping the ESM's 500-billion-euro ($500 billion) lending volume. Only if it is considered "indispensable to safeguard the financial stability of the euro area as a whole" - as the ESM treaty puts it - will financial assistance be granted, which is then subject to "strict conditionality."

"Starting a process for an ESM bailout program requires the European Commission's determining that the eurozone as a whole is threatened, furthermore the Commission, the European Central Bank and the International Monetary Fund determining that Greece's debt is sustainable, and on top of that, the financing need has to be made clear," explained Angela Merkel, adding that all this was not enough: "We will also need to know what the Greek government is ready to do in terms of structural reforms in order to fill any gap in financing or regarding debt sustainability."

No "bridge financing"

Because any financial assistance as part of a ESM program would likely be disbursed too late to prevent a Greek bankruptcy, there had been much speculation among journalists throughout the day leaders would come up with an agreement to help Greece meet short-term financing needs.

But Merkel said short-term measures would only be discussed after long-term proposals were agreed on.

Greece in immediate need of money

After the second bailout program expired on June 30, Greece has been finding itself without financial assistance for the first time since the crisis began in May 2010. That has made it unable to pay off a loan to the IMF, due last week.

Its banks are holding on to a lifeline provided by the European Central Bank (ECB), which has disbursed so-called emergency liquidity assistance, or ELA.

But while the ECB has kept increasing these emergency loans since February, it has maintained them at the level of 89 billion euros since the end of June.

As a consequence, Greece has had to impose bank closures and to limit cash withdrawals of Greek bank card holders to 60 euros per day.

Views differ on how soon Greek banks could run out of cash. The date widely regarded as the ultimate deadline is July 20th, when Greece must redeem bonds worth 3.5 billion euros to the ECB.

If Greece fails to do so, the ECB would almost certainly have to end its liquidity assistance. It is scheduled to meet again on Wednesday.

Mood far from optimistic

While Angela Merkel appeared before the press in what seemed a "can-do-attitude", she said she was not "very optimistic."

For his part, Jean-Claude Juncker, president of the European Commission, said his institution was prepared for everything, including the so-called "Grexit" becoming a reality.

"We have a 'Grexit' scenario prepared in detail," said Juncker. "I am strongly against a 'Grexit,' but I can't prevent it if the Greek government is not doing what we are expecting the Greek government to do."