Greece gets wake-up call: Coming week could seal its fate

The International Monetary Fund (IMF) took the toughest stance, saying it was bringing its negotiators back to Washington as there had been no sign of compromise.
     
"There has been no progress in narrowing these differences," IMF spokesman Gerry Rice said June 11. "There are major differences between us in most key areas."
     
The creditors - the IMF and Greece's fellow eurozone states - want the country to commit to new economic reforms before they pay out another 7.2 billion euros ($8.2 billion). Athens needs the money to repay debts worth 1.6 billion euros at the end of the month and later this summer.
     
European Union President Donald Tusk earlier warned "there is no more time for gambling" and that next week's meeting of the 19 eurozone finance ministers in Luxembourg should be the make-or-break session in sealing Athens' fate.
     
Cutting through days of dense diplomatic talk about the state of negotiations, Tusk said it was time for Tsipras to stop biding for time with unworkable demands.
     
"The Greek government has to be, I think, a little bit more realistic," Tusk said.
     
The comments dented optimism created earlier in the day. Stock markets across Europe that had earlier rallied lost much of their gains. The Greek market closed up by a hefty 8.1 percent before the IMF's tough statement.
     
Despite the bluster, the financial and economic stakes are such that no one is thinking about cutting Greece loose from the eurozone or the global financial network. Failing a deal, there are fears that Greece could drop out of the euro, a move that would create huge uncertainty for Europe and global markets.
     
"We remain engaged," Rice said. "The IMF doesn't leave the table."
     
For months, Greece has wrangled with its creditors over the release of the bailout loans.
     
The eurozone's finance ministers, commonly known as the eurogroup, meet in Luxembourg June 18-19, in a meeting that Tusk says "should be decisive."
     
EU Commission President Juncker said a two-hour meeting with Tsipras on June 11 had been "important, interesting and friendly" but he reported no breakthrough.
     
The creditors have made clear that Greece must improve its offer of reforms. Sticking points appear to center on pensions and changes to labor market rules.
     
The IMF's Rice noted that pensions and wages account for 80 percent of Greece's primary spending. "It's not possible for Greece to achieve targets without reforms" especially in pensions, he said. Greece spends an amount equal to 10 percent of its economic output on pensions, compared to an average 2.5 percent across the eurozone.
     
Greece also needs to overhaul its tax system. "The policy of increasing already-high rates on a low tax base again is not sustainable. It is critical to significantly broaden the tax base," Rice said. He noted Greece has Europe's biggest gap in value-added taxes owed and VAT collected, largely because the system is so complex. Simplifying the VAT tax could increase tax collections by 1 percent of gross domestic product.
     
Over the past few weeks there has been increasing gloom surrounding the talks.
     
The head of Germany's central bank, Jens Weidmann, said time is running out for a deal and the risk of insolvency is increasing by the day.
     
"The contagion effects of such a scenario are certainly better contained than they were in the past, though they should not be underestimated," he said in a speech in London. "But the main losers in that scenario would be Greece and the Greek people."
     
Amid the uncertainty, Greece's economy has slipped back into recession, while figures released June 11 showed that unemployment increased in the first quarter, reaching 26.6 percent - compared to 26.1 percent at the end of last year.
     
And deputy health minister, Andreas Xanthos, warned that Greece's under-staffed, under-funded public health system faces "very serious problems" at the end of the year unless a bailout deal can be struck soon.