Prime Minister Alexis Tsipras sought to repair relations with Greece’s creditors ahead of a diplomatic push to win support for his economic program, as euro area officials said they’re looking for concessions from the new government.
Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal “soon” with the euro-area nations that funded most of the country’s financial rescue, Tsipras said in a statement e-mailed to Bloomberg News on Saturday.
“The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.”
Bond yields surged on Friday after Finance Minister Yanis Varoufakis said the new government will turn its back on the rescue program that allowed Greece to pay pensions and public wages for the past five years in exchange for a punishing regime of spending cuts that wiped out 25 percent of its economy.
Jeroen Dijsselbloem, chairman of the euro area finance ministers’ group, said he welcomed the prime minister’s comments. Their divisions had been laid bare during a meeting in Athens on Friday.
“It is now up to the Greek government to determine its position on how to move forward,” Dijsselbloem said in a text message. “Further decisions will be taken jointly in the Eurogroup in the coming weeks.”
The danger for Tsipras, who took won power in a Jan. 25 election, is that both the country’s banks and the government could be left without funding. Ending the bailout program could see Greek banks effectively excluded from ECB liquidity operations and the government is still shut out of international markets. Former Prime Minister Antonis Samaras said last month the government may run short of financing as early as March.
“Europe will continue to show solidarity with Greece, as well as other countries particularly affected by the crisis, if these countries undertake their own reforms and savings efforts,” German Chancellor Angela Merkel said in an interview with Hamburger Abendblatt.
At the moment, Greece has a special dispensation from the ECB because it’s considered to be complying with the bailout program. That means its debt can be used in central bank refinancing operations even though it is rated junk.
“There will be no surprises if we find out that a country is below that rating and there’s no longer a program that that waiver disappears,” ECB Vice President Vitor Constancio said at an event in Cambridge, England, on Saturday.
Greek bonds tumbled on Friday, with the yield on three-year government debt rising 187 basis points to 19.15 percent, the highest level since the 2012 debt restructuring. Ten-year yields posted their biggest weekly increase since May that year and bank stocks have dropped 38 percent since the election, their biggest weekly decline in almost two years.
While euro area officials want Greece to stick to the austerity set out in its bailout agreement, Tsipras is asking governments in the rest of the bloc to accept a writedown on Greece’s debt to allow him to pursue an alternative program with more public spending to revive the economy.
“We need time to breathe and create our own medium-term recovery program, which amongst other things will incorporate the targets of primary balanced budgets and radical reforms to address the issues of tax evasion, corruption and clientelistic policies,” he said.
The government started to roll back the austerity program last week. Tsipras asked for the resignation of Emmanuel Kondylis, chairman of the fund overseeing the country’s privatization program, and Paschalis Bouhoris, the chief executive officer, a spokeswoman for the fund said late Friday.
A press officer for the Spanish government said Prime Minister Mariano Rajoy’s position that Greece must honor its commitments remains unchanged. The Italian government welcomed Tsipras’s conciliatory tone.
“This statement is not just important per se, but especially because it is complemented by the renewed assurance that a specific effort to address structural problems by the new Greek government is undertaken,” Filippo Taddei, Italian Prime Minister Matteo Renzi’s economic adviser, said in an e-mail.
Tsipras’s diplomatic effort continues next week when he travels to Cyprus on Monday to meet President Nicos Anastasiades before talks with Renzi and France’s Francois Hollande on the following days. He’s so far not scheduled to meet Merkel, the biggest contributor to Greece’s bailout, until the European Union summit in Brussels on Feb. 12.
Dijsselbloem said that his meetings with Tsipras and Varoufakis in Athens on Friday had been “constructive.”
“In diplomatic parlance, they say that talks were constructive and honest when they have ended in disagreement,” European Parliament President Martin Schulz said after his own meeting with Tsipras the day before.