Greece Fails to Reach Bailout Deal at Eurogroup Meeting

By Viktoria Dendrinou And Gabriele Steinhauser 

        LUXEMBOURG--Eurozone leaders will try to clinch a deal on Greece's flailing bailout at a hastily called crisis summit Monday, after finance ministers failed again to bridge the gap between Athens and its lenders.
        The summit--eight days before Greece's eurozone rescue runs out--will be one of the last chances to avert the specter of further economic meltdown for Greece and a messy exit from the eurozone.
        After five months of fraught negotiations, "it is time to urgently discuss the situation of Greece at the highest political level," said Donald Tusk, who presides over meetings of European leaders.
        Christine Lagarde, managing director of the International Monetary Fund, said the extra meeting was necessary "to restore a dialogue with adults in the room."
        The creditors--other eurozone countries and the IMF--want Greece to implement budget cuts, mostly through pensions and sales-tax increases, which they say are needed to restore the country's long-term financial health.
        "Those are measures that are not popular, they will not be easy to take and the big question is whether the Greek government is prepared to take them," said Jeroen Dijsselbloem, who heads up the so-called Eurogroup of eurozone finance ministers. "And if they're not prepared to do that, then they are taking a big, big risk on the future of Greece."
        Athens says the measures demanded would push it further into recession.
        During a lengthy presentation to his counterparts, Yanis Varoufakis, the Greek finance minister, also warned that the consequences of a Greek exit from the eurozone were unpredictable.
        "It is an event that will unleash destructive powers no one can tame," he said, according to remarks published on his blog. "Citizens from all over Europe will target not the institutions but their elected finance ministers, their prime ministers and presidents."
        However, the IMF on Thursday said that the consequences of a default by Greece on its debts, or its subsequent exit from the eurozone, appear manageable for the currency area as a whole.
        The IMF and eurozone governments have been keeping Greece afloat with some EUR245 billion ($279 billion) in emergency loans for the past five years. But the eurozone portion of that bailout runs out on June 30. That same day the country faces a EUR1.54 billion payment to the IMF that it won't be able to make without a new aid transfer.
        Fear of conversion to a new currency is already pushing depositors to take cash out of Greek banks, raising expectations that Greece will soon have to limit withdrawals of euros as well as transfers abroad.
        The ECB's Governing Council will on Friday hold a conference call to consider a request by the Greek central bank for additional emergency loans to buffer deposit outflows, according to a person familiar with the matter.
        On Wednesday, the ECB signed off on another EUR1.1 billion, taking the emergency loans to EUR84.1 billion. But with deposit outflows approaching around EUR1 billion a day in Greece, banks may run out of liquidity as soon as this weekend without additional central bank loans.
        Asked during the Eurogroup meeting whether he was confident that Greek banks could reopen Monday, Benoit Coeure, a member of the ECB's executive board, said he wasn't sure, according to two people familiar with the discussions.
        Greek budget data released Thursday showed the toll the economic uncertainty is taking on state revenues. Budget income in May fell 24% short of the monthly target mainly due to a drop in taxes paid by companies, the finance ministry said.
        Amid the standoff, many countries are now openly preparing for a Greek default and departure from the currency union.
        Michael Noonan, the finance minister of Ireland--which was bailed out by the eurozone and the IMF in 2010--said his country had been working with the ECB to prepare for the fallout of a Greek default. However, he said he wasn't overly worried.
        "We don't think there would be a contagion effect if there was a Greek exit" from the eurozone, Mr. Noonan said.
        In its annual appraisal of the eurozone economy, the IMF said the ECB's recently launched program of government-bond purchases and the eurozone's rescue funds would help ensure that any "market contagion" is "much reduced." Over the longer term, the IMF said the currency area could respond to any doubts about its coherence. should Greece drop out
        "Beyond the near term, the risks surrounding Greece can be managed as long as there are concerted efforts to accelerate and deepen integration within the monetary union to make it more resilient," the Fund said.
        Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com and Gabriele Steinhauser at gabriele.steinhauser@wsj.com
        (END) Dow Jones Newswires

        June 18, 2015 18:33 ET (22:33 GMT)

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