Germany Maintains a Hard Line on Greece Debt After Vote

Germany continued to maintain a hard line with Athens on Monday, just a day after Greek voters decisively rejected a bailout deal from its creditors. But some European countries showed a willingness to soften the push for austerity that has proved so contentious.

The growing rift among European leaders threatens to complicate any new negotiations, as the Greek government moves to restart talks for an international bailout. It also adds to the pressure on Greece, which is close to financial collapse with both the banking system and the government quickly running out of money.

If a deal is not struck soon, Greece will probably default on a batch of international debts this month and face even more trouble paying civil servants and pensioners. Should Greece ultimately run out of euros, it could be forced to issue a parallel currency or IOUs to pay its domestic bills, prompting it to leave the euro currency.

The country's financial state is growing increasingly dire.

As Greek banks faced a shortage of cash, the European Central Bank decided on Monday to extend just enough of an emergency lifeline to keep them from failing. But the amount, about 89 billion euros, will not necessarily be sufficient to keep the money flowing to depositors.

Faced with a funding crisis, the government extended a weeklong bank holiday through Wednesday and said that a withdrawal cap of 60 euros ($67) per day from ATMs could be tightened. On Monday, long lines formed again at cash machines throughout Athens as people continued to withdraw whatever funds they could.

Prime Minister Alexis Tsipras of Greece has moved quickly to take advantage of the vote results, making the first steps toward conciliation with the country's creditors.

The combative finance minister, Yanis Varoufakis, abruptly resigned at Tsipras' behest. He was replaced by Euclid Tsakalotos, an Oxford-educated economist who took over from Varoufakis as Greece's lead negotiator in April.

"I won't hide the fact that I'm nervous and anxious," Tsakalotos said at his swearing-in Monday. "I understand that I'm assuming my post at a difficult time."

The prime minister also persuaded most opposing political parties to back his basic demands from the country's creditors.

After a six-hour meeting, the leaders of Greece's five main political parties issued a statement saying they wanted any negotiation to include a discussion of relief from the country's debt load - a key sticking point with creditors. They are also pushing for immediate help to keep the banks afloat, quick economic aid to tackle unemployment and new bailout money to cover current debt obligations.

In return, they said, Greece would be willing to deliver "credible reforms based on the fair distribution of the burden and the promotion of growth with the smallest possible recessionary impact."

But the impasse over a bailout threatens to take on bigger dimensions, with implications for European unity.

Germany, the eurozone country to which Greece owes the most money, remained resistant. A spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point. The spokesman for Angela Merkel, Germany's chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.

Despite Germany's tough stance  other European leaders seemed eager to avoid the specter of a Greek exit from the euro. While officials in France and Brussels said on Monday that they were unhappy and dumbfounded with the vote, they held the door open to the possibility of a compromise between Greece and its creditors.

At a news conference in Brussels on Monday, the European Commission's vice president for euro affairs, Valdis Dombrovskis, said that the vote in Greece would "dramatically weaken" the country's negotiating position with creditors and had made things "more complicated."

But now was the time to seek a way forward, he added, saying, "If all sides are working seriously, it's possible to find a solution, even in this very complicated situation."

In France, Finance Minister Michel Sapin told French radio that while Greece's vote "resolves nothing," France could support debt relief for Greece should Tsipras come forward with a proposal containing "serious" terms for a new bailout package. Sapin's remarks came ahead of a meeting set for Monday evening in Paris between President Francois Hollande of France and Merkel to discuss how to deal with Greece.

Both leaders called on Greece to submit urgent proposals to avoid a possible exit from the eurozone. The Greek government said that Tsipras and Merkel agreed that he would present new debt proposals on Tuesday, when eurozone leaders are set to meet in Brussels.

Greek banks could continue to limp along for a few more weeks. But they may face an existential crisis at the end of the month if the Greek government does not make a payment of 3.5 billion euros due July 20 on bonds held by the European Central Bank. That would seem nearly impossible unless Greece gets some financial aid.

A missed payment to the central bank would signal unmistakably that the government is bankrupt. It would drag the Greek banks down, too, since they would suffer huge losses on their portfolios of the country's government bonds.

The European Central Bank would have little choice but to stop providing emergency loans that have been keeping the banking system afloat. The central bank is not allowed to lend to insolvent banks.

"The moment of truth will be no later than July 20," said Wilbur Ross, a U.S. investor who owns a large stake in Eurobank Ergasias, the third-largest bank in Greece. "A default there would likely force the ECB to come down on the banks."

Ominously, the central bank also said on Monday that it would tighten requirements for collateral that Greek banks must post in return for loans. The move means that, even if the ECB decides to later increase the lending limit, Greek banks might not have enough collateral to qualify for more emergency cash.

The decision, a concession to hard-liners on the central bank's Governing Council, was a sign the central bank is worried about losses it will suffer if Greek banks fail.

Bankers in Athens are beginning to worry that without additional aid, banks could run out of cash on Friday, according to Stefanos Kotronakis, who works in Athens for ACI Worldwide, a company that provides payment processing services for banks and ATMs.

"The situation from a liquidity perspective is really critical," said Kotronakis, country manager for the company.

People can continue to use debit and credit cards and make electronic transfers within Greece. But Kotronakis said many merchants insist on cash, in part because they are not sure that their money is safe in a bank. Without a banking system serving as a conduit for euros and a platform for transactions, Greece might have little choice but to begin printing its own currency.