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06Feb15

Greece's Syriza government vows to fight pressure to stick to bailout terms

Greece's radical Syriza government has vowed to keep fighting pressure from its eurozone neighbours to stick to the strict terms of its bailout package as battle lines were drawn ahead of crunch debt talks next week.
Eurozone finance ministers have called an emergency meeting for Wednesday night in Brussels to discuss the Greek crisis after a whistlestop tour of Europe by Yanis Varoufakis, Greece's finance minister, made little headway.
Germany wants Greece to arrive with a plan on the repayment of €240bn (Ł180bn) in bailout loans it received from the international community. The special debt meeting will be followed on Friday by a summit of European leaders, the first with Alexis Tsipras, the Greek prime minister.
But a government official ruled out accepting a plan based on the old bailout and said Varoufakis would ask for a bridge agreement to tide Athens over until it can present a new debt and reform programme. "We will not accept any deal which is not related to a new programme," an official told Reuters news agency.
The Syriza party swept to power on a promise to ditch the strict austerity cuts tied to Greece's bailout from the troika of lenders - the European Union, European Central Bank and International Monetary Fund. Now they are in government, Varoufakis and Tspiras have spent the past week meeting their counterparts around Europe, including the British chancellor, George Osborne, to push that same message and argue that ending austerity would do more for economic recovery than relentless cuts.
But they got few concessions and a meeting in Germany with finance minister Wolfgang Schäuble ended with a tense press conference as Greece's paymasters appeared as determined as ever to make Athens stick to the deficit-cutting agenda and pay back the bailout money.
Greek stock markets fell on Friday ending a volatile week of trading. Bank shares were under pressure amid fears of a fresh run on Greek bank deposits. Concerns were intensified this week by a decision from the European Central Bank to tighten the rules on the collateral that Greek banks can post in exchange for loans.
Standard and Poor's, the credit ratings agency, highlighted the tight timeframe for Athens to reach a deal as it cut the credit rating on Greek sovereign debt to "B-" from "B".
The ratings agency said: "The downgrade reflects our view that the liquidity constraints weighing on Greece's banks and its economy have narrowed the timeframe during which the new government can reach an agreement on a financing programme with its official creditors."
It also raised the prospect of a Greek exit from the single currency bloc.
"Although the newly elected Greek government has been in power for less than two weeks, we believe its limited cash buffers and approaching debt redemptions to official preferred creditors constrain its negotiating flexibility. In our view, a prolongation of talks with official creditors could also lead to further pressure on financial stability in the form of deposit withdrawals and, in a worst-case scenario, the imposition of capital controls and a loss of access to lender-of-last-resort financing, potentially resulting in Greece's exclusion from the Economic and Monetary Union."
The Athens FTSE banks index lost almost 10% while Greece's broader ATG shares index lost 2% from Thursday.
The bailout from the troika - which came with stringent conditions, including big spending cuts - is due to expire at the end of this month. But for now many analysts appear hopeful a deal will be done that avoids a Greek exit, or "Grexit".
"We still think that the Greek government and its creditors, including, importantly, the ECB, will eventually come to an agreement on a follow-up bailout that avoids Grexit and a default by the Greek government," economists at Citigroup saidon Friday.
They outlined two agreements that will be needed soon: "An interim agreement (probably by end-February) to keep the Greek government and Greek banks funded for up to four months, with the ECB playing a key role during this period, and ... a more substantial and durable agreement on a follow-up bailout to be struck during that period."
"We continue to expect an agreement on both fronts, but it would require both sides to substantially narrow their differences and we see material risks that either one of these negotiations will fail," the note said.
With time tight and worries that the prospect of the Greek exit from the eurozone will have repercussions around the world, the US again intervened in the standoff on Friday.
After a meeting with Tsipras, the US ambassador to Greece, David Pearce, urged the new government to work cooperatively with its European colleagues and the IMF and to keep on with reforms.
"Greece should continue to make administrative and structural reforms and exercise fiscal prudence," the embassy said in a statement.
[Source: By Katie Allen and Graeme Wearden, The Guardian, London, 06Feb15]

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