Merkel, Hollande urge Greece to walk the rest of the line to a bailout

German Chancellor Angela Merkel and French President Francois Hollande recently urged the 40-year-old Greek Prime Minister Alexis Tsipras to walk the line toward a bailout and fill Athens' empty coffers until November. This comes at a price of painful reforms for the Greek people. 

Merkel said she and Hollande had urged him in a 45-minute private meeting on the sidelines of an EU summit to accept the creditors' "generous" offer. We have taken a step towards Greece," she said. "Now it is up to the Greek side to take a similar step." Both she and Hollande said today's meeting of Eurozone finance ministers would be the decisive moment for a deal since time was running out to secure German parliamentary approval in time to release funds needed to avert a Greek default. 

The creditors laid out terms in a document handed to Greece on Thursday. It said Athens could have 15.5 billion euros in EU and IMF funding in four instalments to see it through to the end of November, including 1.8 billion euros by Tuesday as soon as the Greek parliament approved the plan. The total is barely more than what Greece needs to service its debts over the next six months and contains no new money. Further funding would require a third bailout programme, which is politically impossible for the moment in Athens and Berlin. 

The lenders also made a gesture towards Tsipras' demands for debt relief by offering to reaffirm a 2012 pledge to consider stretching out loan maturities, lowering interest rates and extending an interest payment moratorium on euro zone loans to Greece, a senior EU official said. But the demands come at the price of pension cutbacks, new reductions in public sector salaries, an increase in taxes on food, eateries and tourism, and elimination of tax breaks on tourist islands. That has sparked protests in Greece, where one in four people are out of work.

Greek Prime Minister Alexis Tsipras has now called for a referendum on the bailout offered by its three creditors. A referendum proposed for July 5 will have the entire electorate vote on the bailout package and the terms and conditions it offers. Tsipras said he would respect the outcome of the vote. But he argued that the lenders' demands "clearly violate European social rules and fundamental rights", and would asphyxiate Greece's flailing economy and was aimed at the "humiliation of the entire Greek people".

It is already widely expected that the elected members will vote against the bailout package. Government ministers leaving the cabinet meeting said that they were confident Greeks would vote no and reject the bailout demands, leaving open the question as to whether the country had other options beside leaving the euro in such an event.

In an atempt to ease capital control worries, a deputy minister said there were no plans to impose capital controls and banks would open as normal on Monday.

However, Woldgango Piccoli of Teneo Intelligence said in a research note that "the risk of Grexit has increased considerably, from previously 20% to at least 50%". He further added that "avoiding capital controls next week will be very difficult, if not impossible."

This is not the first time that Greece has flirted with a referendum in recent years. Former Prime Minister George Papandreou sought one in 2011 as he struggled to impose painful cuts demands by lenders, but was ousted over the call and his administration replaced by a government of technocrats.