German chancellor Angela Merkel, left, talks with Greek prime minister Alexis Tsipras at the begining of the second day of the fourth European Union (EU) eastern Partnership Summit in Riga, on May 22, 2015.ALAIN JOCARD/AFP / Getty Images
Angela Merkel and Francois Hollande told Greece there's no alternative to dealing with creditors as it seeks to unlock bailout funds, after another round of negotiations failed to break the impasse over aid.
With time running out for a deal to free up the remaining 7.2 billion-euro ($8-billion) tranche of aid, the German chancellor and the French president said the Greek government needs to do more work to flesh out its reform program and satisfy the creditor institutions of the European Commission, the International Monetary Fund and the European Central Bank.
They spoke after discussions with Greek Prime Minister Alexis Tsipras on the sidelines of a European Union summit in Latvia broke up in the early hours of Friday with an agreement only to keep talking. Whereas Tsipras referred to a solution "soon," Merkel said there's "a whole lot to do."
"We need to have the strongest and most complete agreement possible now to secure and facilitate talks for the next deadlines," Hollande told reporters in Riga later on Friday. "Therefore Greece must give the most information it can on its reforms. Tsipras is working on that."
The meeting marked another rejection by Merkel – backed by Hollande – of the latest Tsipras attempt to bypass finance ministers and strike a political deal at the level of government leaders, highlighting German insistence that Greece's budget numbers must add up before aid can be released. Without an agreement, Greece risks a default that would put in question its future in the 19-nation euro region.
"It was a very friendly, constructive discussion," the chancellor told reporters as she arrived for the second day of the two-day summit. "But it was very clear that further work has to be done with the three institutions."
Greek bonds fell, with yields on two-year notes rising 44 basis points to 73 per cent at 2:29 p.m. in Athens, reversing earlier gains. Greek shares were little changed, with the benchmark Athens Stock Exchange gaining 0.1 per cent.
Tsipras said that he was "optimistic we can soon reach a long-term, sustainable and viable solution without the mistakes of the past – and Greece will soon come back with cohesion and growth." He is due to meet later on Friday with EU Commission President Jean-Claude Juncker.
A government official, in a debriefing after the talks broke up about 1 a.m., signaled Greek frustration by saying that a main obstacle is that the International Monetary Fund needs to be on board. "Open issues" remain with creditors, including pensions, sales-tax rates and targets for a primary budget surplus, the official told reporters.
A short statement released separately by the French and German governments after more than two hours of talks with Tsipras was devoid of earlier optimism expressed by Hollande at paving the way for an accord as soon as the end of the month. In its place, the governments of the two biggest euro-area economies talked of agreement "to stay in close contact."
"Approaching payments to the IMF in the first half of June help focus the mind," George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business, said by phone. "Baseline expectation remains that the two sides will strike an 11th-hour agreement."
France and Germany offered to provide assistance to Greece and Tsipras whenever questions come up, Merkel said. "But the accord must be reached with the three institutions and very, very intensive work has to be done."