Saturday, January 31, 2015

Greece Seeks to Reassure Europe as Tensions Rise
Greek Prime Minister Alexis Tsipras with EU Parliament
President Martin Schulz at press conference.
Sat, Jan 31 2015
By James Mackenzie and Renee Maltezou

ATHENS (Reuters) - New Greek Prime Minister Alexis Tsipras, striking a conciliatory note on debt talks after a turbulent start to office, has called the European Central Bank chief to assure him that Athens was seeking an agreement.

The new government in Athens made clear from its first day in power that it would not back down on its election pledges to abandon the austerity policies imposed under the bailout agreement sealed by the last government.

But facing growing disquiet from partners led by Germany, Tsipras rang European Central Bank President Mario Draghi on Friday night to assure him that Athens was seeking an accord, a government official said.

"The discussion was conducted in a good spirit and it was confirmed that there's a willingness to find a mutually beneficial solution for Greece and for Europe," said the official, who spoke on condition of anonymity.

He also spoke to Jeroen Disselbloem, head of the euro zone finance ministers' group who ended a visit to Athens on Friday with a thunderous expression after an apparently scratchy exchange with Greek Finance Minister Yanis Varoufakis.

The official said Dijsselbloem had called Tsipras to reassure him that despite minor signs of tension, the negotiations would continue.

After halting some privatisations and announcing plans to reinstate thousands of public sector workers laid off under the bailout, the government confirmed on Friday it was not interested in renewing the bailout deal when it expires on Feb. 28.

With German politicians from Chancellor Angela Merkel down repeating daily that Athens must respect the bailout accord with the European Union and International Monetary Fund "troika", Tsipras and his finance minister begin lobbying for support in other European capitals on Sunday.

Varoufakis meets his French counterpart Michel Sapin in Paris before travelling to London the next day. Tsipras, whose first foreign visit will be to Cyprus, will join him on Tuesday in Rome before meeting European Commission President Jean-Claude Juncker and French President Francois Hollande on Wednesday.

France and Italy, the two governments that have pushed hardest to loosen the strict budget austerity imposed at the start of the euro zone crisis, may offer Varoufakis and Tsipras a sympathetic ear when they visit.

But they have both said they would not accept the new leftwing government's call for a "haircut", writing down part of Greece's 320 billion euro debt and potentially exposing their own Treasuries to billions of euros of losses.

Varoufakis told Dijsselbloem on Friday that Athens did not want an extension to the bailout but a new accord and would not deal with the troika mission overseeing the bailout.

On Saturday, he told the weekly Agora newspaper that Greece needs "fiscal breathing space" with a bridging deal of a few weeks while a new agreement with creditors is worked out and economic reforms including a crack down on tax evasion begin.

With both sides keen to prevent tensions during the first few days of the Tsipras government slipping out of control, he warned against "verbal fetishism" and said the differences could be overcome.

While there was resistance in Europe to a straight haircut on the face value of the debt, there was more willingness to explore other options including extending maturities or cutting interest payments that could have the same effect.

In an interview with German weekly magazine Der Spiegel, Greek Economy Minister Georgios Stathakis said it would be better to link the country's debt repayments to its economic growth rate as it needs a feasible solution to bring its sovereign debt under control.

Athens faces about 10 billion euros (7.5 billion pounds) in repayments this summer and is shut out of international bond markets while it waits for a final bailout tranche from international lenders of 7.2 billion.


Highlighting the risks Athens faces if no deal is reached by the Feb. 28 deadline, European Central Bank Governing Council member Erkki Liikanen said Greek banks, already facing serious deposit outflows, would be cut off from ECB lending.

As well as ensuring continued ECB support for the banks, agreement is needed for some 7 billion euros in funds to be released. Without the funds, Greece would probably be unable to meet 10 billion euros in debt repayments that fall due between June and September.

However, Merkel repeated that further debt cancellations were unacceptable and Athens would have to respect its obligations.

Varoufakis said Greece would continue to issue new short-term T-Bills while talks proceed, even though Athens has already reached a 15 billion euro issuance limit agreed with the troika.

But that would do little to prevent the crisis that could ensue if the banks lost support from the ECB and the issue is likely to feature heavily in discussions next week. With financial markets on edge, Greek banking stocks have fallen by nearly 40 percent since Sunday's elections.

Following his finance minister's visit to Paris on Sunday and to London on Monday, Tsipras himself will visit Rome on Tuesday to meet Italian Prime Minister Matteo Renzi and Paris on Wednesday, where he will meet President Francois Hollande.

Notably absent from the list of destinations was Berlin or Frankfurt.

(Reporting by Renee Maltezou; writing by James Mackenzie; Editing by Dominic Evans and Stephen Powell)

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