Phillip Inman, economics correspondent Thursday 5 February 2015
Syriza finance minister Yanis Varoufakis claims widespread support in Eurozone over debt relief for Greece, but Angela Merkel stands firm
Greece’s newly installed left-wing government is heading for a showdown with German leaders over plans to cut the debt repayments due from Athens this summer.
The Greek finance minister, Yanis Varoufakis, flew to Berlin to prepare for meetings on Thursday with his German counterpart, Wolfgang Schäuble. At the end of a four-day whistle-stop tour of European capitals, he claimed he now had widespread support for his debt relief proposals.
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Varoufakis, sticking to his casual no-tie policy, said a meeting with the European Central Bank chief, Mario Draghi, on Wednesday, was “fruitful” and Athens could count on the central bank’s support.
But the German chancellor, Angela Merkel, maintained that senior officials in Brussels, Paris and Madrid remained firmly committed to making European debtor countries repay their loans in full.
“I don’t think that the positions of the member states within the euro area with regard to Greece differ, at least in terms of substance,” Merkel told reporters in Berlin.
There were also reports the ECB would not allow Athens to use the central bank’s balance sheet to raise cheap bridging finance.
Meanwhile, Reuters reported it had seen a document prepared by Germany that made clear Berlin wants Athens to go back on its promises to raise the minimum wage, halt unpopular sales of national assets, rehire fired public sector workers and reinstate a Christmas bonus for poor pensioners.
“The euro group [of Eurozone finance ministers] needs a clear and front-loaded commitment by Greece to ensure full implementation of key reform measures necessary to keep the programme on track,” it said.
Merkel’s intervention indicated that a diplomatic offensive by the new Greek prime minister, Alexis Tsipras, to ease bailout-aid requirements was failing to win converts.
Following a meeting with the European commission president, Jean-Claude Juncker, in Brussels, the Greek premier flew to Paris for talks with François Hollande. After talking for more than an hour and a half in the Élysée Palace, both agreed the EU must change tack to focus more on growth and jobs and called for dialogue on the Greek debt crisis.
Hollande said Europe should show more solidarity, which “underscored that austerity as the only perspective and reality wasn’t tolerable any more”.
However, he was more circumspect when asked about plans to cut Greek debt payments. “There is also respect for European rules, which are imposed on everyone, France too, and it’s not always simple. And then respect for commitments that have been made in connection to debts related to states,” Hollande told reporters with the Syriza leader at his side.
France, which has missed budget targets of its own, has offered to help Athens in debt talks but rejects cancelling the country’s debts and said it would not take part in any anti-Berlin front.
Tsipras said: “The debt must become viable. This is what we must discuss,” adding that he had put “realistic” proposals to EU partners in meetings over the past few days.
“I am convinced we can work together to get out of the crisis in Greece and to help Europe overcome the crisis,” he said.
Markets, which have rallied in response to the more moderate tone struck by Tsipras, remained steady. Greek banking shares rallied for a third day, with Bank of Piraeus up 20.8% and Euro bank up 10.7%. The Athens benchmark index ATG, which rose 0.9% on the day, has now recovered all the ground lost after the election of Syriza.
But City analysts remained sceptical about the Greeks’ chances of wining a major debt write-off without German rapport and amid a lack of appetite for reversing EU austerity policies.
Tsipras wants easier terms of repayment on the country’s €240bn (£180bn) in bailout loans and to relax the austerity budget measures the country has been required to make. Athens has balanced its current spending but only after steep cuts to the minimum wage and state pensions, which Syriza argues has plunged the country into a debt spiral and undermined its recovery.
Varoufakis said debt payments should be forgiven until the economy and government finances are in better shape.
Stephen Lewis, the chief economist at broker ADM Investor Services, said: “While it might seem reasonable that the Greek government’s debt servicing costs be reduced if growth turned out weaker than expected, symmetry would demand that Greece pay more if growth turned out to beat forecasts.
“If the Greek debt burden could only move in one direction, that is, towards a lighter load, the European commission would be accepting the principle of debt forgiveness.”
After Tsipras met the presidents of the EU’s three main institutions in Brussels, sources close to the commission told Reuters that the Greek delegation discussed plans with Juncker to “jointly” create a four-year reform plan and talked about the “bridge agreement” that would give Athens time to formulate “a radical plan of reforms in key areas such as corruption, tax evasion and strengthening public administration.”