European leaders urged Greek Prime Minister Alexis Tsipras to pare back his ambitions for easing the financial pressure on his people as stocks and bonds tumbled.
Officials from Brussels to Vienna spoke out after Tsipras once again vowed to reverse the austerity imposed by the previous government as a condition for Greece’s bailout. That sets up a clash with the rest of the euro area when finance ministers meet to discuss the country’s financing needs at an emergency session in Brussels on Wednesday.
“Greece shouldn’t assume that the overall mood in Europe has changed to the point that the euro zone would endorse Mr. Tsipras’s entire government agenda without limitations,” European Commission President Jean-Claude Juncker told reporters at an event near Berlin.
While Greece is pushing the troika of official creditors to drop the austerity demands that have helped wipe out a quarter of gross domestic product since the start of the crisis, the government also needs help to meet its obligations. Without concessions, the government may run out of money before the end of March, forcing Tsipras either to cave in to European demands or abandon the single currency.
Behind the Rhetoric
Behind the public rhetoric, the Greek government has shifted to a more cooperative tone in recent conversations with the troika, according to an official representing the creditors. Greece has been told it needs to ask for a formal extension of its existing bailout deal in order to receive financing, said the official, who asked not to be named because the discussions are private.
Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Tsipras accepts he needs a new program and commits not to reverse the most important overhauls of the bailout agreement.
Both officials said that the prime minister’s comments on Sunday, which came in an address to parliament, had complicated discussions because his confrontational tone will make it more difficult to back down on issues such as labor market rules, privatizations and pension reform. Germany’s vice chancellor, Sigmar Gabriel, said the Greek leader’s tone was “regrettable.”
Greek markets fell, with the Athens Stock Exchange dropping 6 percent as of 2:25 p.m. local time, and the yield on three-year bonds jumping 361 basis points to 20 percent.
U.K. Prime Minister David Cameron was briefed on the Greek situation by Treasury officials on Monday.
Tsipras said he aims to reach an agreement with the country’s creditors within 15 days on a “bridge program,” which will ensure the country’s financing until June.
“Greece wants to service its debt, which is now over 180 percent of GDP,” Tsipras said. “It’s impossible to service as long as our partners insist on austerity.”
The country’s public debt stands at more than 320 billion euros ($362 billion). Greece’s debt-to-GDP ratio is the highest in the European Union.
In a lengthy list of policy actions, Tsipras also said the government plans to restore the tax-free threshold for individual workers to 12,000 euros a year and gradually raise the minimum wage to 751 euros a month through 2016. Both measures would breach the conditions of the bailout.
Tsipras said he’s committed to maintaining balanced budgets and wants to negotiate terms that will make Greece’s debt sustainable. He said he’ll halt the privatization of the country’s infrastructure.
“What they want to do has nothing to do with all the agreements which have been made,” German lawmaker Michael Fuchs, deputy caucus chairman of Chancellor Angela Merkel’s Christian Democrats in parliament, said in a Bloomberg TV interview. “If Greece at the end of the day says the only way to get rid of the pressure is to step out of euro zone, it’s up to them. We are prepared for this moment.”
Tsipras said the government hopes to strike a more lasting arrangement with international creditors by June, even as he vowed to give a Christmas bonus to low-income pensioners, forbid foreclosures of primary residences, abolish current property tax, and rehire some public servants who were dismissed during the crisis.
The government’s proposed bridge program wouldn’t include more loans from its bailout creditors, a Greek government official said last week, asking not to be named in line with policy. Instead, the government wants to be able to increase its stock of Treasury bills beyond the current limit of 15 billion euros, the official said.
“I am not in favor of handing over money to the Greeks,” Austrian Chancellor Werner Faymann said in an interview with the Kurier newspaper before Tsipras’s Sunday speech. “Who’s supposed to pay for that? I do however support negotiations over technical credit conditions so that the country will have more room to maneuver to exit the crisis.”