By Gabriele Steinhauser in Brussels and Andrea Thomas in Berlin
Germany stood firm against debt relief for Greece the day after
the country's voters issued a resounding "no" to more austerity,
signaling a tough fight ahead on one of the few opportunities for
compromise on any potential bailout for Athens.
About 61% of Greek voters cast their referendum ballots on
Sunday in support of Prime Minister Alexis Tsipras's stance against
the pension cuts and tax increases that Greece's creditors--the
rest of the eurozone and the International Monetary Fund-- say are
necessary to get Greece's economy going again.
That leaves cutting debt as a possible make-or-break element of
any deal to keep Europe's currency union intact.
German Chancellor Angela Merkel and French President François
Hollande, whose country has emerged as one of the few friendly
voices for Greece in the eurozone, made no mention of the debt
issue at a joint news conference in Paris.
But opposing comments from their finance ministries earlier in
the day suggest that the question will be a major theme at a summit
of eurozone leaders on Tuesday.
"We have shown a lot of solidarity with Greece and the last
offer [for more bailout aid] was also a generous offer," Ms. Merkel
told journalists after the one-hour meeting. "At the same time,
Europe can only hold and stand together ... if every country lives
up to its own responsibility."
Ms. Merkel and Mr. Hollande said it was now up to Greek Prime
Minister Alexis Tsipras to make clear proposals on what his
government is prepared to do in return for renewed support from the
other 18 eurozone countries.
"Time is pressing here and it is important to us that such
proposals must come this week so we can resolve the situation as it
presents itself currently," Ms. Merkel said.
Raising expectations on the possibility of resuming
negotiations, the country's confrontational Finance Minister Yanis
Varoufakis resigned on Monday under pressure from Mr. Tsipras and
creditors. Though extremely popular at home, Mr. Varoufakis has
exasperated European colleagues with his blunt talk and
confrontational style since taking the job in January.
Finding a solution to Greece's financial crisis is urgent if
Europe wants to keep its currency union intact. The eurozone
portion of Greece's EUR245 billion ($271 billion) bailout has
expired, and a default on a EUR1.56 billion payment to the IMF last
week means Athens isn't eligible for any more loans from the fund.
A crucial EUR3.5 billion bond repayment to the European Central
Bank is due July 20.
Some relief for Greece--whose debt load stood at 177% of gross
domestic product at the end of last year--would allow Mr. Tsipras
to deliver new concessions to the country's voters. But it could
prove expensive for other governments, both financially and
politically. Initial reactions Monday pointed to a split between
the eurozone's two biggest economies.
"A haircut [on Greece's debt] is not on the table for us,"
Martin Jäger, the spokesman of German Finance Minister Wolfgang
Schäuble said, reiterating the long-held view of the
government.
France's finance minister was more sympathetic. "I've always
said talking about debt is not a taboo," said Michel Sapin. "The
burden of debt in the coming months and years is too high for
Greece to be able to pick itself up again."
Any deal on the debt would have to come as part of a broader
agreement on more bailout aid. In the coming years, Greece has to
repay billions of euros of old loans from the IMF, which likely
wouldn't be included in any restructuring.
Germany's vice chancellor and leader of the Social Democrats,
Germany's junior coalition partner, struck a pessimistic note on
the likelihood of reaching a deal before the next big payments to
creditors.
"The ultimate insolvency of the country seems to be imminent,"
said Sigmar Gabriel, who is also Germany's economic minister. "We
all know that it is pretty much impossible" for Greece to pay back
its debt in the near- and long-term, he said.
Any proposals on how a financial breakdown could still be
avoided would have to come from the Greek side, Mr. Gabriel said.
"The ball is now in Athens's court," he said.
The first outlines of Greece's plan were emerging Monday. In a
rare sign of unity, Mr. Tsipras and the leaders of the opposition
party decided in a seven-hour meeting that Greece's common goal is
to cover financing needs and go ahead with reforms "with the least
possible recessionary impact." A Greek government official said
that the plan included a commitment to restructure the debt.
There are alternatives to a straight-out reduction in the face
value of the eurozone's rescue loans to Greece. In 2012, when the
country last came close to default, the currency union's finance
ministers promised to take measures to bring the country's debt to
below 110% of GDP within 10 years, for instance by giving it more
time to pay them back or further lowering interest rates.
Letting its eurozone bailout expire last week means that "this
offer is not on the table anymore now," Valdis Dombrovskis, the
European Commission's vice president of the euro, said. But Mr.
Dombrovskis said that past discussions have shown that "eurozone
countries are ready to look at the Greek debt, at the
conditionality of the Greek debt, at the debt settling costs."
The European Central Bank tightened the screws on Greek banks on
Monday by raising the amount of collateral they must post to secure
the emergency lending that is keeping them alive. It also decided
to maintain the cap on the emergency loans that has been in place
for more than a week.
Greek banks have been closed since last week and ATM withdrawals
have been limited to EUR60 euros a week to stem the flow of money
that Greeks had been pulling out of the banks, and financial
paralysis could worsen. The head of the country's banking
association told reporters Monday that banks would remain closed
through Wednesday; few expect them to open any time soon after
that.
The IMF has long insisted that high debt has been weighing on
growth and that the currency union's governments should take action
to reduce it. In an analysis of the country's debt path over the
coming decades released last week, the IMF said that even if Athens
implements the rejected measures, the eurozone would need to double
the maturities of its rescue loans to Greece to 60 years.
If budget and overhaul targets were weakened further, the IMF
warned, governments might have to write off some EUR50 billion of
the EUR184 billion they have already lent Greece. That report was
seized on by Mr. Tsipras and other members of his government in
their "no" campaign.
William Horobin
in Paris and Nektaria Stamouli and Stelios Bouras in Athens
contributed to this article.
Write to Andrea Thomas at andrea.thomas@wsj.com