Greece's Damage Control Fails to Budge Euro Officials

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GREECE-POLITICS-GOVERNMENT

Newly elected Greek Prime Minister Alexis Tsipras, center, on Jan. 28, 2015 at the Greek Parliament in Athens.

Photographer: Louisa Gouiamaki/AFP via Getty Images

Greek Prime Minister Alexis Tsipras’s damage-control efforts calmed investors while failing to budge European policy makers on his week-old government’s key demands.

Officials in Berlin, Paris and Madrid rejected the possibility of a debt writedown raised by Greece’s anti-bailout coalition, as they held out the prospect of easier repayment terms, an offer that has been on the table since November 2012.

Greek stocks and bonds rebounded following a conciliatory statement issued by the premier Saturday. He promised to abide by financial obligations, a prelude to a tour of European capitals, after Finance Minister Yanis Varoufakis had prompted concern of a looming cash crunch by saying the country won’t take more aid under its current bailout and wanted a new deal by the end of May.

“The weekend statements sound less absurd than the noises from Athens last week,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note today. “However, the ideas of the new Greek government remain far removed from reality.”

The Athens Stock Exchange index jumped 4.6 percent, led by Eurobank Ergasias SA. The yield on 10-year notes fell 22 basis points to 10.9 percent at 5:30 p.m. in Athens.

Varoufakis was in London today, meeting Chancellor of the Exchequer George Osborne and then investors in sessions organized by Bank of America Merrill Lynch and Deutsche Bank AG.

‘Rising Threat’

“It’s clear that the stand-off between Greece and the euro zone is fast becoming the biggest risk to the global economy,” Osborne said in a statement after their talks. “It’s a rising threat to our economy at home.”

Tsipras was in Cyprus before trips to Rome, Paris and Brussels, with Berlin not yet on the agenda. German Chancellor Angela Merkel wants to duck a direct confrontation and isolate him, a German government official said.

In Nicosia, Tsipras repeated his finance chief’s call for an end to the committee that oversees the Greek economy. Dismantling the troika, which includes representatives of the European Commission, European Central Bank and International Monetary Fund, is “timely and necessary,” Tsipras said.

“Greece is in a new stage in its negotiations, on equal terms with its partners,” he told reporters after meeting Cypriot President Nicos Anastasiades. “Europe doesn’t need further limitations of the necessary breathing space for its people and economies to return to growth, to leave behind four years of ineffective choices on all levels.”

Greek Banks

Looming is the prospect of the ECB cutting the financial lifeline to Greece’s financial system as depositors flee.

Greek banks lost at least 11 billion euros ($12.5 billion) in deposits in January, according to four bankers who asked not to be named because the data were preliminary. The outflow accelerated from about 4 billion euros in December. Deposits totaled 160.3 billion euros at the end of 2014.

At the moment, the country 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.

“Without European loan support, Greece will run out of money in March, possibly sooner,” said Nicholas Economides, professor of economics at New York University’s Stern School of Business. “This could result in a new Greek bankruptcy within the euro or even a ‘grexit.’”

Merkel Agenda

Merkel wants to avoid getting drawn into a confrontation with Tsipras and is unlikely to agree to a face-to-face meeting with him at a Feb. 12 gathering of European Union leaders, according to a German government official who asked not to be named because the discussions are private.

A “discussion about a haircut or a debt conference is outside of reality,” German Finance Ministry spokesman Martin Jaeger told reporters in Berlin last week. “We can discuss, we can postpone, we can alleviate. But we won’t cancel it,” France’s Finance Minister Michel Sapin said Sunday.

The chancellor’s goal is to show Tsipras that he is isolated, the official said. What’s more, she sees little margin for maneuver on the conditions of any further support for Greece and is skeptical about Tsipras’s claims that he can raise revenue by cutting corruption and increasing taxes on the rich, the official added.