Greece Faces Decisive Week as Tsipras Is Set to Meet Merkel

Greek Prime Minister Alexis Tsipras is set to meet German Chancellor Angela Merkel for the second time in five days on Monday, at the start of a week that may prove decisive for Greece’s future in the euro area.

The meeting in Berlin with the leader of the biggest contributor to Greece’s stalled 240 billion-euro ($259 billion) bailout is a precursor to make-or-break decisions Tsipras faces as his country’s financial predicament becomes ever more parlous. His government needs to spell out economic measures it plans to undertake as early as this week to unlock long-withheld aid payments that will keep the country afloat.

“I hope there’ll be a U-turn on policies in Athens, but I maintain my view that if not, the Greek economy will collapse and they’ll slip out of the euro zone into chaos,” said Erik Nielsen, global chief economist at UniCredit AG. “The Greek government ought to recognize that this is ‘endgame stuff.’’

The standoff has also triggered a run on Greek banks, amid concerns over the country’s place in the euro area. The monthly drop in deposits in January was the steepest recorded in at least 20 years, and the bleeding has since continued. Net withdrawals on Friday were about 450 million euros, on top of 1.1 billion euros which had fled Greek banks in the previous three days, a person familiar with the matter said, asking to to be named, as daily outflow data isn’t public.

Greek banks cover their cash shortfall through an Emergency Liquidity Assistance lifeline, subject to weekly review by the ECB. Last week, the ECB raised the maximum ELA ceiling by just 400 million euros, less than half of what the Greek central bank had requested, to 69.8 billion euros. The ceiling will be reviewed again this week.

“Taking together the resumption of bank deposit outflows, disappointing public finance data and the minimal progress of negotiations, we highlight an increasing risk that payment controls may be implemented soon,” Barclays economists Francois Cabau and Thomas Harjes wrote in a note to clients on March 20.