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Markets rattled by collapse of Greek bailout talks

Financing Greece's army of pensioners has become a key sticking point between the two sides: previous reforms have already left many below the poverty line, but the system is still unaffordable in the long run, the IMF warns.Photograph by Louisa Gouliamaki — AFP/Getty Images

World stock markets are down Monday in the wake of another shambolic weekend in the Greek debt saga, which saw the latests attempt by Athens and its creditors to bridge their differences break up on Sunday night in Brussels after less than an hour.

Greece’s government has come out fighting again Monday morning, again saying it won’t make the pension cuts and VAT increases that the creditors demand, while European politicians have warned for the umpteenth time that time is running out and that they won’t be blackmailed. Athens needs to pay the International Monetary Fund some €1.5 billion ($1.7 billion) by the end of the month. That’s also the date it will lose access to the remaining €7.2 billion in its bailout fund.

The yield on Greece's 2-year bonds, which would be the most sensitive to a default, has soared.
The yield on Greece’s 2-year bonds, which would be the most sensitive to a default, has soared.


The Athens stock market is down by over 4%, led by the banking sector, and yields on Greece’s two-year bonds, which would be the most sensitive to a default, have surged to over 28%, their highest this year. Stocks around Europe are also lower, with the main German index -1.5%, France -1.1% and Italy -2.0%, while the non-Eurozone U.K’s FTSE-100 is down 0.7%.

Worryingly for the rest of the Eurozone, there are signs that the sense of crisis is spreading again to other countries. Bond yields in Portugal, Spain and Italy, some of the other countries most vulnerable to the fallout from Greece, have risen sharply as investors start to take the risk of a Eurozone breakup seriously for the first time since 2012.

Contagion is back. Spain, Italy and Portugal are all facing higher borrowing costs.


Greece’s Prime Minister Alexis Tsipras earlier held a crisis meeting with his closest ministerial colleagues to discuss strategy, and issued a statement as defiant and strident as anything in the five months since he took office.

“We will patiently wait for the institutions (to) adhere to realism,” Tsipras said. “This is not a matter of ideological stubbornness. This is about democracy. We do not have the right to bury European democracy where it was born.”

That didn’t wash with politicians elsewhere in the Eurozone. Even Sigmar Gabriel, the leader of Germany’s center-left Social Democratic Party that has been more sympathetic than most in Germany to Greece’s plight, wrote in the mass-circulation daily Bild-Zeitung that: “More and more people are feeling that the Greek government is leading them by the nose,” Gabriel said, adding in a sideswipe at the country’s flamboyant finance minister Yanis Varoufakis: “The game theorists in the Greek government are gambling with the future of their country.”

“We won’t let the exaggerated election promises of a partly communist government be paid for by German employees and their families,” Gabriel wrote. That position is shared by around 70% of Germany, according to a poll for broadcaster ZDF.

Varoufakis, for his part, told the same newspaper that Greece doesn’t want any more money, it just wants a debt restructuring: a move that would effectively force Germany and other European donors to lose some of what they’ve lent to the country in the last five years.

Varoufakis and his colleagues have some sympathy on the other side of the table. IMF chief economist Olivier Blanchard wrote in a blog post Sunday that the European creditors need to offer “debt relief sufficient to maintain debt sustainability,” but even he stopped short of supporting a partial write-off of its debt to the Eurozone (Athens has pressed for as much as 50%).

It’s an inauspicious start to a week peppered with big dates. The European Central Bank’s governing council is due to meet on Wednesday, and is likely to consider the possibility of capital controls on Greece’s banks to stem the quickening outflow of deposits. Its President Mario Draghi, may give a hint of the bank’s thinking already today when he addresses the European Parliament.

The ECB is widely expected to avoid any technical move that would precipitate a crisis without explicit political backing from the rest of the Eurozone. But that could come as soon as Thursday when the Eurogroup (the college of the 19 Eurozone states’ finance ministers) meets in Brussels.