Greeks soften loan write-off stance, ease EU creditors’ fears
ATHENS, Greece — Hopes for a deal between Greece and its European creditor nations got a boost Tuesday after the country’s new government backed away from demands to write off a chunk of its bailout loans, a prospect that had horrified investors.
The Athens Stock Exchange closed up 11.3 percent, leading a European market rally, after Finance Minister Yanis Varoufakis said his country’s new radical left government would accept alternative strategies to make Greece’s debt load more bearable.
Varoufakis said he would this week visit his counterpart in Germany, the most powerful of Greece’s European creditors but the toughest on debt issues.
Signs of relief also came from the European Union, where the president of the executive commission, Jean-Claude Juncker, said the bloc will “have to adapt a certain number of our policies” to accommodate Greece.
The Financial Times reported that during a visit to London, Varoufakis had backed off the idea of a flat debt write-off. Instead, he suggested exchanging Greece’s debt to its bailout creditors with bonds that would be repaid only if Greece’s economy grows. Varoufakis, who is on a European tour, also offered using so-called perpetual bonds — which allow issuers to pay
interest forever while forgoing the principal.
That would be a less confrontational approach than the government’s previous insistence on a write-off, which would have implied a cut in the face value of Greek bonds held by eurozone countries and the European Central Bank.
Historically, creditor countries have often written off debt owed by poorer nations. Greece’s case is complicated, however, by the fact that it is part of a currency union — richer countries such as Germany do not want to set a precedent for other states that might get into financial trouble.
German Chancellor Angela Merkel refused to comment specifically on the bond proposal Tuesday, but she did not reject it outright. She said there “will be sufficient opportunities” to discuss various proposals.
Varoufakis confirmed that he will meet European Central Bank President Mario Draghi in Frankfurt today and German Finance Minister Wolfgang Schaeuble in Berlin on Thursday morning.
Greece has to strike a comprehensive deal with its creditors by the end of June, as otherwise it would be unable to
An Athens Stock Exchange repay some $8 billion worth of bonds maturing in July and August.
Analysts say Greece needs a deal quickly to keep uncertainty from scaring off investors, hurting the already suffering economy and inducing depositors to pull money from banks. As things stand, Greece’s banks can use their government’s bonds as collateral to tap cheap European Central Bank credit only until Feb. 28, when Greece’s bailout program expires. After that, they would need to get emergency credit at higher rates from the Bank of Greece, though only with permission from the central bank.
Elected Jan. 25, Prime Minister Alexis Tsipras’ government quickly riled creditors and investors with its insistence on an overhaul of its bailout stipulations, including the austerity budget measures that creditors had required. The government quickly froze privatization plans and reversed previous measures.
“After a very rocky start last week, the new Greek government is faring better this week,” said Berenberg Bank analyst Holger Schmieding. “The charm offensive of the new Finance Minister Varoufakis seems to be paying off in financial markets.”
The suggested bond swap would considerably ease Greece’s debt burden. It would also prove a softer sell to taxpayers in Germany, the Netherlands and other European creditors.
JPMorgan Chase Bank analyst Malcom Barr said Varoufakis’ comments indicate that the government is admitting it may not deliver on all its preelection promises. However, he warned that Greece and its creditors remain far apart.
“We still find it difficult to believe that the path toward an accommodation between Greece and the rest of the region will be at all smooth,” he said.
Tsipras and Varoufakis were in Rome on Tuesday for talks with government officials.
Meanwhile, the European Union signaled Monday that the “troika” — a group of unelected specialists from the executive commission, the European Central Bank and International Monetary Fund that supervises Greece’s finances — could be replaced. The new Greek government has refused to negotiate with it.
Commission spokesman Margaritis Schinas said the troika could give way to “a more democratically legitimate and more accountable structure.”