June 11, 2015

Only a week ago, officials on both sides of the negotiating table believed that a solution to Greece’s agonising stand-off with its creditors was mercifully at hand.

In a late-night meeting on the 13th floor of the European Commission headquarters in Brussels, Jean-Claude Juncker, the commission’s president, presented a five-page plan for Greece that had been hammered out days earlier among Europe’s most powerful leaders in private talks at the chancellery in Berlin.

If Alexis Tsipras, the Greek prime minister — who had flown in especially for the session — could accept the deal, or something close to it, the country would soon gain access to €7.2bn in bailout aid and avoid defaulting on its debts.

After the four-hour session, Mr Juncker thought he had a deal: Mr Tsipras had accepted new budget surplus targets that were tougher than Athens had hoped but lower than the existing bailout programme. Mr Tsipras disagreed with raising taxes on energy and many of the pension cuts, but agreed to return with a counter-proposal that would identify cuts elsewhere to make up the difference.

Since that moment last Wednesday, however, the putative agreement has fast unravelled.

Members of Mr Tsipras’s radical Syriza party angrily denounced the plan as soon as they caught wind of the details. Faced with a political firestorm back home in Athens, Mr Tsipras cancelled a follow-on meeting with Mr Juncker and instead delivered a strident rejection of the plan before the Greek parliament, calling it “absurd” and containing “irrational, blackmailing demands”.

Adding insult to injury, Mr Tsipras opted to delay a €300m payment due the same day to the International Monetary Fund — even though he had told his creditors he would not do so. Christine Lagarde, the IMF managing director, was caught out, having just hours earlier assured the public that Athens would make the payment.

For many Europeans, attitudes hardened during a weekend summit in Bavaria of leaders of the Group of Seven leading industrialised economies, according to a senior official. During a closed-door session, Barack Obama told EU leaders he was sympathetic to their difficulties with Athens — a sharp change for the US president, who has in the past used G7 and G20 summits to prod Europeans to be more magnanimous.

When a Greek counter-offer finally arrived — hand-delivered on Monday evening by some of Mr Tsipras’s closest advisers, including Nikos Pappas, his long-time political aide-de-camp — EU officials were stunned. Instead of proposing a redistribution of cuts, as Mr Tsipras had promised, Athens wanted to renegotiate lower budget surpluses.

“The disappointment in the incompetence and deviousness is immense,” fumed one senior eurozone official. Mr Juncker, incensed at what he viewed as Mr Tsipras’s double-dealing, told a meeting of his fellow commissioners in Strasbourg earlier this week that Greece had “lost the European Commission”.

On Thursday, hours after Mr Tsipras held an inconclusive, late-night meeting with his French and German counterparts in Brussels, the IMF finally intervened. It announced it was pulling its technical team out of the talks — a move intended to inject urgency into the negotiations. The gesture arose out of frustration with what one official described as an “air of unreality” around the talks.

Since Monday, team members had not held a single meeting with their Greek counterparts, according to one official.

The prospect of the IMF leaving the bargaining table is particularly troubling for Berlin. It has been adamant throughout the crisis that the fund — whose technical skills and rigour it values over those of the commission — should remain fully involved in the talks

The IMF’s concerns grew in part because of the increasingly political nature of the discussions. Gerry Rice, a spokesman for the fund, said on Thursday that the key sticking points remained pensions, taxes and Greece’s financing needs.

But the IMF is also frustrated that the European side has been unwilling to address the issue of Greece’s debt pile seriously.

According to the IMF’s calculations, putting the Greek economy on a sustainable path now requires — at the very least — an extension of the maturities on Greece’s outstanding debts. But European officials, wary of public opinion, have been reluctant to discuss even that.

In Athens, reaction to news of the IMF pullout was subdued. A government spokesman said the Greek side wanted to continue negotiations with the aim of striking a deal “even within hours”, but did not explain how talks would resume without the IMF representatives at the table.

Since April, the government has kept alive hopes of a deal with weekly promises that it would be agreed “within a few days” — a strategy aimed at soothing public opinion and averting a bank run that could trigger a financial collapse.

With the ball now squarely in Greece’s court, analysts struggled to predict Mr Tsipras’s next move. George Pagoulatos, an economics professor at Athens business university, doubts the government has a fallback plan in case a deal cannot somehow be revived.

“There’s clearly no desire within the Syriza government to tackle the consequences of a default — let alone a ‘Grexit’,” he said.