Greece Just Clipped Varoufakis’s Wings

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Greece reshuffled its bailout-negotiating team, reining in Finance Minister Yanis Varoufakis, after three months of talks with creditors failed to unlock aid and a meeting with his euro-area counterparts ended in acrimony.

The coordination of the day-to-day efforts to strike a deal with creditors was handed to Deputy Foreign Minister Euclid Tsakalotos, a Greek government official said in an e-mail to reporters Monday. Varoufakis will supervise the political negotiations with euro-area member states and the International Monetary Fund. No change was announced to Greece’s representation in euro-area finance ministers’ meetings, which Varoufakis attends.

A Eurogroup meeting in Riga, Latvia on Friday descended into name-calling as the currency bloc’s finance ministers hurled abuse at their Greek colleague, accusing him of being a time-waster, a gambler and an amateur. Still, the 54-year-old academic-turned-politician in the government of Prime Minister Alexis Tsipras remains popular at home, with 55 percent of respondents in an Alco survey published in Proto Thema newspaper Sunday expressing a positive view about him.

“This move squares the circle, because it doesn’t look like Tsipras is surrendering by firing Varoufakis, but it to some extent has the same result,” said Michael Michaelides, a strategist at Royal Bank of Scotland Group Plc in London. “It doesn’t change the issues, but given the interpersonal nature of the Eurogroup, and since the finance ministers still remain in charge, this is significant.”

Conciliatory Move

Greek shares rallied after the announcement, with the benchmark Athens Stock Exchange closing the day up 4.4 percent. Bonds rose, with the yield on 3-year notes falling 399 basis points to 22.32 percent.

The action was seen as a conciliatory move by the Tsipras government, according to two officials representing Greece’s creditors. One of them said it may be too late and expressed doubts over whether it can work, given the governing party’s stance on the bailout accord.

The change comes as Greece struggles to amass cash to pay its pensioners and employees this week. Europe’s most-indebted state is counting on deposits of local governments, cities and other funds to meet end-of-month payments of over 1.5 billion euros ($1.62 billion) after euro-area finance ministers on Friday said they won’t disburse more aid until bailout terms are met. State coffers will be further strained on May 6, when Greece needs to find 200 million euros for an IMF payment.

Cash Reserves

The Central Union of Greek Municipalities said Monday that cities won’t commit to transferring their cash reserves to the Bank of Greece for short-term state financing until the government explains how these funds will be managed.

Still, some city officials, including Yiannis Boutaris, the mayor of Thessaloniki, Greece’s second-largest city, have said they will comply with a government decree ordering them to deposit their reserves with the Bank of Greece, which in turn will invest them in government repurchase agreements.

Tsipras’s anti-austerity coalition has sought to get bailout funds released since agreeing to extend the program in February. The government has repeatedly expressed confidence a deal was imminent, only to be rebuffed by euro-area officials seeking concrete reform steps from Greece.

Last week was no different: days after Varoufakis said views were converging, his counterparts across the region hit him with a volley of criticism.

Elusive Agreement

“The government negotiation has wasted much precious time, and lost far too many of Greece’s friends abroad,” George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business, said. “An urgent reshuffle was needed, to streamline the negotiation and put forward a team that can enjoy greater credibility in the eyes of the partners,” Pagoulatos said in an e-mail, adding that the announced reshuffle was in a positive direction.

The Greek government supports Varoufakis in the face of international and targeted attacks, spokesman Gabriel Sakellaridis said in a statement.

Under the reshuffle, George Chouliarakis, Greece’s representative at the Euro Working Group of finance ministry officials, will be responsible for the so-called Brussels Group meetings between Greek technocrats and representatives of creditor institutions.

Nikos Theoharakis, an associate of Varoufakis at the finance ministry who had been leading technical negotiations so far, will now focus on drafting a growth plan for the Greek economy, the government official who announced the changes said.

Varoufakis ‘Emasculated’

The changes come as two opinion polls published over the weekend showed a continuing drop in support for the government’s confrontational stance in talks with the euro area and the IMF. More than half of respondents in an Alco survey in Proto Thema newspaper said the government should compromise even if creditors reject Greek demands.

“The Greek people are absolutely clear that they want to stay in the euro come what may,” said Aristidis Hatzis, associate professor of law and economics at the University of Athens. “They’ve understood that it will require hard compromises, even austerity.”

Negotiations between the country and creditor institutions have failed to move forward with the main sticking points being over labor market and pension reforms and state asset sales.

After “wasting three months” and drying up liquidity in the economy since the elections, the prime minister is “emasculating” Varoufakis, opposition party Pasok said in a statement. The move is sending a signal to creditors that Greece wants an agreement, Pasok said.

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