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Greek report
by Euro Reporter
2015-02-01 13:20:59
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Greece on collision course with Brussels after Merkel backs hard-line debt stance

Angela Merkel has ruled out the prospect of Greece securing further debt cuts from its creditor nations, potentially putting the country’s new leftist government on a collision course with Brussels. The German chancellor’s uncompromising stance will not be welcomed in Athens, where the new ruling party, Syriza, insists that it will make good on its promises to halve the country’s €320bn (£240bn) debt obligations and scrap a range of swingeing budget measures that were imposed in exchange for the loans. Athens is refusing to cooperate with the European Commission, European Central Bank and International Monetary Fund – the troika of institutions overseeing the loans, which total about 175% of Greece’s gross domestic product. Instead its new government is looking to meet with individual creditor nations as it seeks concessions that it claims are vital if Greece is to emerge from years of austerity. However, such unilateral measures will be fiercely resisted by Germany, which is adamant that Eurozone creditor nations must hold the line on Greece’s debt. When asked in a newspaper interview published yesterday whether there could be further concessions for Greece, Merkel said Athens had already been forgiven billions of euros by private creditors. “I don’t see a further debt haircut,” she said.

Her comments echoed those made the previous day by the German finance minister, Wolfgang Schäuble, who told Die Welt: “If I were a responsible Greek politician, I wouldn’t lead any debates over a debt haircut.” However, Merkel stressed that Berlin still wanted Greece to remain in the Eurozone. She told the Berliner Morgenpost that Europe will continue to show solidarity with Greece and other struggling nations “if these countries undertake their own reform and saving efforts”. Germany is clearly worried that if concessions were granted to Greece, other struggling EU member states would make similar demands. Yesterday tens of thousands of people marched through Madrid’s streets in a show of strength by Spain’s fledgling radical leftist party Podemos, which hopes to emulate the success of the Syriza party in elections later this year.

However, Germany will be buoyed by the fact that its tough line on debt relief appears to have been endorsed by France. On Friday night a source close to the French president’s office told Reuters that president François Hollande and Merkel were agreed “that it is important to respect the choices of the Greek people and for Greece to respect its commitments” to the holders of its debt. “There is a need for dialogue and exchange to better understand the intentions of the Greek government,” the source said after Hollande and Merkel had met over dinner in Strasbourg. In an attempt to break the consensus among Eurozone nations, the new Greek finance minister, Yanis Varoufakis, is meeting with his French counterpart, Michel Sapin, in Paris. Varoufakis appeared to rule out the prospect of ceding to the wishes of Eurozone creditors. “We are not prepared to carry on pretending and extending, trying to enforce an unenforceable programme which for five years now has steadfastly refused to produce any tangible benefits,” he told the BBC’s Newsnight. “The disease that we’re facing in Greece at the moment is that a problem of insolvency for five years has been dealt with as a problem of liquidity.”


Greece hires Lazard to advice on debt

The Greek government has hired investment bank Lazard to advise it on managing sovereign debt in a sign that Syriza is serious about honouring its election pledge to restructure its debt pile — despite EU officials warning against it. Tensions have been high since the country’s newly-elected far-left party came to power after winning elections a week ago, with German chancellor Angela Merkel on Saturday reiterating that Greece’s European creditors would not consider forgiving part of the debt-ridden country’s rescue loans. “I don’t see a further debt haircut,” she said in an interview in Berliner Morgenpost. News of the move to hire Lazard came as Erkki Liikanen, an ECB governing council member, warned that Greek banks would be cut off from ECB lending if no deal was reached by the end of February when Greece’s support programme expires, according to Reuters.

“We (the ECB) have our own legislation and we will act according to that...Now, Greece’s programme extension will expire at the end of February so some kind of solution must be found, otherwise we can’t continue lending,” Mr Liikanen said. Meanwhile, prime minister Alexis Tsipras on Friday called ECB president Mario Draghi to reassure him that his new government wanted to reach a “mutually beneficial” solution with international partners over the renegotiation of Greece’s bailout. A Greek official, who spoke to Bloomberg on condition of anonymity, said Mr Tsipras called Mr Draghi following a tense meeting between his new finance minister Yanis Varoufakis and Jeroen Dijsselbloem, the head of the Eurozone group of finance ministers. Mr Varoufakis had said that Greece would no longer co-operate with the troika of international lenders and would not accept an extension of its EU bailout. “This position enabled us to win the trust of the Greek people,” he said. Mr Dijsselbloem in return rejected the new Greek government’s call for an international conference that would consider writing off part of Greece’s debt, which last year amounted to 175 per cent of national output. The exchange, along with tough words from Berlin, captured an adversarial mood as the new Greek government and its Eurozone partners made their first formal contact and set the stage for tense negotiations that could decide Greece’s future in the European bloc.

Speaking to the Financial Times in London on Friday, Pierre Moscovici, the EU economics commissioner, urged calm, saying: “We all need to be careful about the economic situation in Greece. Our common goal is to enhance growth. For that we need pragmatism and respect for commitments, from both sides.” But Greece’s new government has alarmed creditors and investors with pledges to freeze privatisations, rehire state workers and otherwise roll back reforms adopted by previous administrations as part of the bailout. Mr Varoufakis, emboldened by his far-left Syriza party’s success, said Greece was “working from the standpoint of the best possible co-operation with its institutional partners and the International Monetary Fund but not with a [bailout] programme that we think is anti-European.”

He also blasted the deeply unpopular bailout monitors from the European Commission, IMF and ECB, also known as the troika, saying: “We are not going to co-operate with a rottenly constructed committee.” Mr Varoufakis and Mr Tsipras will embark on a round of visits next week to London, Paris and Rome to seek backing for Greece’s position. Mr Varoufakis will meet his French counterpart Michel Sapin on Sunday before flying to the UK for a meeting with Chancellor George Osborne. He may also meet investors in London, where Merrill Lynch and Deutsche Bank are trying to fix meetings. Mr Dijsselbloem warned the new government against taking unilateral steps or ignoring arrangements with lenders, saying “the problems of the Greek economy have not disappeared overnight with the elections”. Patience for Greece is running particularly thin in Germany. Ms Merkel said Europe would continue to show solidarity with Greece and other nations hit by Europe’s debt crisis as long as they undertook their own reform and austerity programmes. “We — Germany and the other European partners — will now wait and see what concept the new Greek government comes to us with,” she said


Greece's new Finance Minister: 'You have to be prepared to blow the whole thing up'

Greece will neither seek an extension of its controversial bailout nor cooperate with the so-called "troika" of international creditors, the country's new finance minister declared Friday, following up on a previous threat to "blow the whole thing up" in order to win concessions designed to boost the Greek economy. The comments by Yanis Varoufakis, an economist and member of the leftist Syriza party, threaten to unravel carefully negotiated but deeply unpopular bailouts of Greece by the European Central Bank, International Monetary Fund and European Commission that led to harsh austerity and severe cuts in government spending. The Syriza party won Sunday's national election. Greece's economy has shrunk by about 30 percent since 2008, according to data compiled by the World Bank. Its economy was smaller in 2013 than in 2005. About a quarter of its workers are unemployed, according to the Hellenic Statistical Service, or Elstat. Youth unemployment exceeds 50 percent. "We are not going to cooperate with a rottenly constructed committee," Varoufakis said, according to news reports. The troika has been monitoring Greece's progress toward commitments made by previous administrations as part of its bailout, such as selling off state assets and trimming worker benefits and government payrolls.

Varoufakis added that the Greek government would not seek to delay the approaching Feb. 28 deadline to extend the terms of the country's bailout. "This platform enabled us to win the confidence of the Greek people," he reportedly said. "The Greek state has a future, but what we won’t accept as a future is the self-perpetuating crisis of deflation and unsustainable debt," Varoufakis said, according to news reports. The comments come as Greece's economy staggers to grow following a brutal, six-year recession that decimated household finances and appears to have been worsened by the very bailouts that were supposed to rescue it. Just over 10 percent of the 240 billion euro bailout has been used to finance government operations, according to figures compiled by MacroPolis. The rest has gone to repaying creditors and bailing out banks.

It is against this backdrop that previous comments by Varoufakis, highlighted Friday by the radio program "Left Business Observer," may prove instructive in trying to understand the Syriza party's aims and the lengths to which Greece's new ruling party will go in order to reduce the country's debt burden. In a November interview, Varoufakis told Doug Henwood that the world should expect a "potentially explosive negotiation" if the Syriza party should win Greece's then-upcoming election. "The only thing you can really do is negotiate with the rest of Europe," Varoufakis said. "But to negotiate, to be taken seriously, you have to have a credible threat. You have to be prepared to blow the whole thing up, simply by being intransigent if you are not taken seriously. "So, this is my recommendation: Prepare for a very tough, very painful, potentially explosive negotiation." In a 2010 interview with Henwood, Varoufakis recounted a conversation he claimed to have had with an official at the European Central Bank, who told him that the international creditors planned to push the country into a "permanent recession" in order to drive down wages as part of a plan to reform the Greek economy. In a November 2014 interview, Varoufakis predicted that countries pushing Greeks to accept austerity -- such as Germany -- would be doomed to repeat the experience of the victors of World War I, who imposed such harsh conditions on Germany that many believe it led to the rise of Adolf Hitler. "I think we'll have a repeat performance of that," Varoufakis said of Germany today.


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