Eurozone leaders gather for high-stakes Sunday as Greece schism beckons

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Europe braced itself for its most fateful day in years on Sunday as presidents, prime ministers, and chancellors congregated in Brussels for a summit to decide whether Greece remains in the euro single currency.

Donald Tusk, the president of the European Council, cancelled an emergency full summit of the 28 countries that was to deal with the fallout from Greece’s ejection, in order to give eurozone leaders a last chance to reach an accord savingGreece and forestalling what would be a devastating schism sowing deep resentment and division between Europe’s leaders.

Eurozone finance ministers met on Sunday morning to try to reach agreement on launching talks on Greece’s third bailout in five years after failing by midnight on Saturday to draft a common statement on the crisis.

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The eurozone’s fiscal hawks, led by Wolfgang Schäuble, the German finance minister, the Finns and the Slovaks, rejected new austerity measures conceded by Alexis Tsipras, the leftist Greek prime minister, and for the first time pushed openly for Greece to be allowed to collapse financially and ejected from the single currency.

Arriving at the talks on Sunday, the finance minister of Finland, the country seen as one of the biggest doubters over a deal, said talks had a long way to go. “If this was a negotiation from one to 10, I think we are still standing somewhere from three to four,” said Alexander Stubb, adding that Finland did not want to block an agreement.

However, his scepticism was shared by ministers from the Baltic states and countries of central and eastern Europe.

Slovakia’s finance minister, Peter Kažimír, one of the most hawkish voices around the table, said he did not expect a deal on Sunday.But Jean Asselborn, the Luxembourg foreign minister, said: “Grexit has to be prevented.” He told the Munich newspaper Süddeutsche Zeitung: “It would be fateful for Germany’s reputation in the EU and the world.

“Germany’s responsibility is great. It’s about not conjuring up the ghosts of the past,.

“If Germany goes for Grexit, it will trigger a deep conflict with France. That would be a catastrophe for Europe.”

The mood in Brussels was grim, sombre, and ugly. The stakes could not be higher. The weight of history seemed to rest on the shoulders of Chancellor Angela Merkel. If the German leader supports her finance minister’s hard line later on Sunday, it may be that Greece cannot be saved.

Der Spiegel in Hamburg called it the biggest day of Merkel’s 10-year chancellorship and appealed to her to “show greatness” and save Europe. Matteo Renzi, the Italian prime minister, was said to be planning a bitter attack on Merkel, depending on the progress at the summit. Renzi was to tell Germany enough is enough and that the EU could not flourish while member states were humiliated.

If Der Spiegel is right about the momentousness of Merkel’s day, the same could be said for President François Hollande of France who, with his government and officials, has been campaigning tirelessly in recent weeks to keep Greece in the euro, helping Athens to draft its proposals.

A decision on so-called Grexit, which has never been closer, would be a shattering failure for Hollande and the resulting Franco-German recrimination will be deeply damaging.

Saturday’s talks between the 19 eurozone finance ministers in Brussels ended at midnight, with deep divisions persisting over whether to extend another bailout of up to €80bn to Greece in return for fiscal reforms. This morning’s gathering will attempt to reconcile those differences ahead of the eurozone leaders’ meeting.

On Saturday, it was reported that Finland would not back a further bailout while it emerged that a German finance ministry paper had called for Greece to be turfed out of the currency bloc for at least five years.

Experts from the group of creditors known as the troika - the European Commission, International Monetary Fund and the European Central Bank - said fiscal rigour proposals from Athens were good enough to form “the basis for negotiations”.

But Schäuble dismissed that view, supported by a number of northern and eastern European states.

“These proposals cannot build the basis for a completely new, three-year [bailout] programme, as requested by Greece,” said the German finance ministry document. It called for Greece to be expelled from the eurozone for a minimum of five years and demanded that the Greek government transfer €50bn of state assets to an outside agency for sell-off.

Timo Soini, the nationalist True Finns leader, meanwhile, threatened to bring down the government in Helsinki if Stubb agreed to a new bailout for Greece.

“The hawks are very vocal,” said an EU diplomat. “It’s very tough.” Berlin also demanded stronger and more intrusive powers for outside monitors to police the economic and fiscal reforms that Alexis Tsipras, the leftist Greek prime minister, would need to commit to to secure the new bailout.

Sunday’s negotiations between finance ministers are essentially talks about talks - with the aim of getting a political mandate to launch negotiations on Greece’s third rescue package in five years. The ministers faced formidable problems, said Schäuble, who argued that debt relief for Greece, broadly seen as essential, was banned by the EU treaties. “Athens’s proposals are far from sufficient. The funding gaps are way beyond anything we’ve seen so far,” he said. The aim is to agree a political mandate to negotiate the fine details of a bailout.

Progress has stalled amid huge scepticism that Greece would ever be able to deliver on its promises of reform.

“The main obstacle to an agreement is trust,” said Pier Carlo Padoan, finance minister of Italy, one of the countries most sympathetic to Greece.

Valdis Dombrovksis, the European commissioner in charge of the euro, said it was “relatively unlikely” officials would get a mandate to start formal negotiations on a bailout programme under the European Stability Mechanism - the eurozone’s €500bn bailout fund.

That leaves Greece’s financial system facing huge uncertainty. Greek banks have enough cash to last until Monday, the country’s banking association said last week. The Greek economy minister George Stathakis told Greek TV on Saturday that banks could reopen as soon as next week, but warned that restrictions on daily withdrawals and capital controls may remain in place for several months.

The eurozone has been united for five months in the negotiations with Tsipras, but with the stakes rising greatly in the last 10 days, major divisions have surfaced, with the French working tirelessly to save Greece and the hardliners now pushing Greece’s expulsion for the first time openly.

The European commission and the European Central Bank issued dire warnings that a failure to grant Greece new rescue funds of up to €78bn would put the country on a trajectory of complete banking and financial collapse.