Merkel Warns Greece Time Is Running Out

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 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 and leaders from the 19-member region gather Tuesday.

After promising Greek voters a “no” outcome 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.”

Heading into the Brussels talks — 1 p.m. for the finance chiefs, and 6 p.m. for the summit — Greece made a pre-emptive concession to its trio of creditors with the resignation of outspoken Finance Minister Yanis Varoufakis who clashed with his counterparts from other countries, especially Germany’s Wolfgang Schaeuble.

Draghi Appeal

U.S. President Barack Obama spoke by phone with Hollande and the two agreed on the need for a way forward that’ll allow Greece to resume reforms and return to growth within the euro area, according to a White House statement. Treasury Secretary Jack Lew spoke with Tsipras and new finance chief Euclid Tsakalotos and urged a constructive outcome.

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.

Earlier, the ECB kept its lifeline at a prior level, rather than raise it as Tsipras wanted. Yet it increased the haircuts on collateral pledged against emergency liquidity, raising the discount applied to reflect the dire situation.

Bridging Gap

Financial market reaction to the latest stage in the crisis was muted, suggesting its effects can be contained. The euro was little changed at $1.1049 in Asia and U.S. Treasuries pared back some of last session’s gains. The MSCI Asia Pacific Index rose 0.7 percent from its lowest level since March.

Euro region finance officials on a Monday conference call made little progress towards bridging the gap between Greece and its creditors, two people involved in the talks said. The call took place in preparation for Tuesday’s round of talks.

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, on Bloomberg Television. “There’s latitude for the Greeks to go back to the Europeans and present them with something that’s a little bit more palatable.”

Narrowing Window

Unless it finds a solution to its cash crunch, Greece could drift toward a euro exit. Without funds to pay salaries and goods, the government could eventually be forced to issue IOUs or some other medium of exchange, which might gradually evolve into a parallel currency.

“You can’t understate the importance of today’s meeting,” Laura Fitzsimmons, Sydney-based vice president for futures and options at JPMorgan Chase & Co. said on Bloomberg Television. “The ball is in Greece’s court to come to the party. Unless they bring something that is workable to the Eurogroup it will be difficult to go much further from here.”

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