June 19, 2015

The eurozone’s leaders have been summoned to an emergency summit in Brussels in a last-ditch effort to prevent Greece from defaulting on its debts and potentially crashing out of the EU’s common currency after finance ministers failed to agree a deal to release desperately needed bailout aid.

Donald Tusk, the European Council president who convened the summit of eurozone heads of government, said the finance ministers’ failure on Thursday evening meant it was now time to “urgently discuss” the Greek crisis “at the highest political level”.

Alexis Tsipras, Greek prime minister, has long sought to negotiate a deal with his fellow leaders, and some eurozone officials said they remained hopeful that Mr Tsipras — who has privately told EU leaders he wants to reach a deal — will agree to creditors’ terms on Monday despite four months of resistance.

“The key emergency is to restore a dialogue with adults in the room,” said Christine Lagarde, the International Monetary Fund chief who attended the session.

Although Yanis Varoufakis, the Greek finance minister, presented a new proposal for a “deficit brake” to automatically cut spending across the board if the government’s budget went into the red, eurozone officials said the plan mimicked existing EU rules and was dismissed by those in the room.

Instead, fellow ministers vented their frustration at Mr Varoufakis for the stalemate. According to two officials present, Benoît Cœuré, the European Central Bank board member responsible for crisis issues, warned that the uncertainty over Greece’s future had become so severe he was unsure Greek banks would be able to open on Monday.

A senior Athens banker said that nearly €2bn in deposits had been withdrawn from Greek banks from Monday through Wednesday of this week. The Greek central bank late on Thursday night requested an unscheduled conference call of the ECB governing council on Friday to get approval for additional emergency loans to keep Greek banks afloat.

Mr Cœuré’s warning was first reported by Reuters. The ECB declined to comment.

After a four-hour meeting of eurozone finance ministers in Luxembourg, Greece’s creditors expressed their exasperation in unusually sharp terms, saying the two sides were no closer to an agreement. They insisted that Athens must become more serious in presenting a credible reform plan to access the €7.2bn in aid remaining in the bailout programme.

Mr Varoufakis blamed fearmongering by the previous government, unreasonable demands from creditors, and inappropriate warnings from the Greek central bank for causing the increase in withdrawals, which have sparked fears of a full-scale bank run. He rejected the idea of imposing capital controls to slow the deposit flight.

“A monetary union that has accepted capital controls is a monetary union that has accepted that it has failed in its duty to preserve the free flow of capital,” Mr Varoufakis said.

According to people briefed on eurozone planning, Greece’s central bank could request that Mr Tsipras legislate for capital controls if no agreement is reached at the Monday night summit, called for 7pm.

Jeroen Dijsselbloem, the Dutch finance minister who chaired the ministerial gathering in Luxembourg, for the first time acknowledged that time had run out to disburse rescue funds to Athens before the bailout programme closes at the end of the month.

Instead, Mr Dijsselbloem said any agreement would now need an extension of the programme into July — the third extension in six months — heightening the risk that Greece will default on a €1.5bn loan repayment due to the IMF in less than two weeks.

“It is unthinkable the implementation [of reforms by Greece] and then disbursement would also take place before the end of the month,” Mr Dijsselbloem said.

If a deal is reached and an extension agreed, among the options being discussed by creditors is using €10.9bn in existing aid previously set aside to recapitalise Greek banks and redeploying it as normal bailout funds that Athens could use to pay its upcoming debts.

Athens faces €6.7bn in bond repayments in July and August.

But Mr Dijsselbloem made clear that no extension would be granted unless a deal were struck on economic reforms.

Athens has vociferously rejected the creditors’ compromise plan because of cuts demanded in public sector pensions and tax increases on electricity.

Mr Dijsselbloem rejected Mr Tsipras’s continued demands that any agreement include debt relief. Several officials believe the Greek premier will be unable to sign a deal without some kind of debt restructuring. Eurozone officials said leaders were prepared to offer the promise of future writedowns, but not as part of the current deal.

“The logical order of things is that we reach agreement on the terms of the . . . fiscal measures, reforms, first before we look to the future,” Mr Dijsselbloem said of Greek proposal for debt restructuring. “This Greek proposal is part of their vision of the future.”