Merkel warns Greece time running out to save place in euro zone

FRANCOIS HOLLANDE, France's president, right, embraces Angela Merkel, Germany's chancellor, as she departs Elysee Palace following a meeting in Paris on Monday. Merkel said
FRANCOIS HOLLANDE, France's president, right, embraces Angela Merkel, Germany's chancellor, as she departs Elysee Palace following a meeting in Paris on Monday. Merkel said "time is running out," as she and Hollande responded to Sunday's referendum in Greece. / BLOOMBERG NEWS PHOTO/CHRISTOPHE MORIN

ATHENS – Greek Prime Minister Alexis Tsipras was given hours to come up with a plan to keep his country in the euro as citizens endure a second week of capital controls.

German Chancellor Angela Merkel said “time is running out,” as she and French President Francois Hollande, leaders of the two biggest countries in the euro bloc, responded for the first time to Sunday’s referendum. The European Central Bank piled on the pressure by making it tougher for Greek banks to access emergency loans. Finance ministers from the 19-member region gather on Tuesday for an emergency meeting.

After promising voters a “no” against austerity would strengthen his negotiating hand, the onus is on Tsipras to prove he can get a deal with creditors insistent on tax hikes and spending cuts as the price for a new bailout of Europe’s most indebted nation.

“The last offer that we made was a very generous one,” Merkel said Monday at the Elysee Palace in Paris. “On the other hand, Europe can only stand together, if each nation takes on its own responsibility.”

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Heading into the Brussels, Greece made a pre-emptive concession to its trio of creditors with the resignation of outspoken Finance Minister Yanis Varoufakis, who had clashed repeatedly with his counterparts from other countries – especially Germany’s Wolfgang Schaeuble.

Draghi appeal

With bank closures extended through Wednesday to stem deposit withdrawals, Greek lenders are being kept on the equivalent of a drip feed by the ECB. In a phone call with ECB President Mario Draghi, Tsipras raised the issue of lifting capital controls, providing more emergency liquidity assistance to Greek lenders, according to a Greek government official speaking on condition of anonymity in line with policy.

The reaction of financial markets to the latest stage in the crisis was muted, suggesting its effects can be contained. The euro fell 0.6 percent to $1.1059 while the benchmark Stoxx Europe 600 Index dropped 1.2 percent.

“The Greek government has to take a decision tonight, this evening, on what they’re going to do tomorrow, and whether they come with a serious story to the summit,” Dutch Prime Minister Mark Rutte said Monday in The Hague.

The new finance chief at the negotiating table is Euclid Tsakalotos, who will likely prove less combative in style than his predecessor but may prove less different in substance.

Referendum victory

Tsipras can claim a strong domestic mandate to negotiate after 61 percent voted “no” to the latest creditor proposals. The endorsement came even after banks had been closed for a week, causing widespread lines at ATM machines as Greeks waited to withdraw a daily maximum of 60 euros ($66) each.

“No question about it in the short term. Tsipras won,” said Hans Humes, founder of Greylock Capital Management, in Bloomberg Television interview. “There’s latitude for the Greeks to go back to the Europeans and present them with something that’s a little bit more palatable.”

Unless it finds a solution to its cash crunch, Greece could drift toward an exit from the euro area – an outcome that Tsipras and other European leaders say they want to avoid at all costs. Without funds to pay salaries and goods, the Greek government could eventually be forced to issue IOUs or some other medium of exchange, which might gradually evolve into a parallel currency.

“The window for a deal keeps narrowing,” Mujtaba Rahman, an analyst at Eurasia Group in London, wrote in a note to clients. “The euro leaders’ summit on Tuesday is likely to prove decisive for Greece’s euro membership.”

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