Greece’s new leftist finance minister clashed openly with his powerful German counterpart on Thursday as Athens’ borrowing costs leapt and bank shares plunged following the European Central Bank’s decision to stop funding the country’s lenders.
After blunt talks in Berlin, German Finance Minister Wolfgang Schäeuble said he had told Greece’s Yanis Varoufakis it was not realistic to make electoral promises that burdened other countries, and they had “agreed to disagree”.
A defiant Varoufakis, whose hard left-led government was elected on a platform of scrapping austerity measures and negotiating a debt write-off, contradicted him at a joint news conference, saying: “We didn’t even agree to disagree.”
Schäueble said he and Varoufakis had been unable to bridge their difference. And while he respected the choice made by Greek voters, it was essential the new government stick to agreements reached with the European Union and work with the IMF, the ECB and the European Commission.
Prime Minister Alexis Tsipras’ 10-day-old government has said it will not extend a bailout programme due to expire at the end of this month and has refused to cooperate with the so-called troika of international lenders. It has also said it will reverse some unpopular measures imposed by foreign creditors and halt some privatisations, raise the minimum wage, rehire fired public sector workers and restore a bonus for poor pensioners.
“Greece won’t take orders any more, especially orders through e-mails,” Tsipras told his left-wing parliamentary group, denying that he had returned empty-handed from a European tour.
Greece cannot be blackmailed because democracy in Europe cannot be blackmailed
“In only a week, we won allies that we haven’t won in the last five years of the crisis,” he said.
In an apparent reference to the tough stance taken by the ECB and others, Tsipras said: “Greece cannot be blackmailed because democracy in Europe cannot be blackmailed.”
The ECB’s decision on Wednesday to stop accepting Greek bonds in return for funds shifted the burden onto Athens’ central bank to finance its own banks, dealing a big setback to government efforts to buy time to negotiate a new debt deal.
The Athens Stock Exchange FTSE Banks Index plunged 22.6 per cent initially and ended 10 per cent down. Three-year government borrowing costs leapt to nearly 20 per cent, leaving Greece utterly shut out of the capital markets.
Central bank governor Yannis Stournaras said Greek banks were solid and under control.
Varoufakis said Athens proposed a bridging programme until the end of May to allow time for debt talks, vowing that Greece would do everything in its power to avoid default. He said he had not discussed with Schaeuble Greece’s debt repayment schedule nor any possible ‘haircut’ for official creditors.
Two centre-left leaders whose support Tsipras had sought, French President Francois Hollande and Italian Prime Minister Matteo Renzi, both endorsed the ECB decision as legitimate and said it should drive all sides to reach a quick agreement.
As pressure from EU partners mounted, Tsipras won a gesture of support from Russian President Vladimir Putin, at loggerheads with the West over Ukraine, who invited the Greek leader to Moscow on May 9 and discussed boosting coooperation in energy and the economy during a phone call.
Varoufakis had pleaded in vain with ECB President Mario Draghi on Wednesday to maintain normal funding for Greek banks over several months while Athens negotiates a debt deal. In a policy paper circulated to EU officials and seen by Reuters, Germany said Greece had to stick to the terms of the €240 billion bailout negotiated by the previous government, and not roll back planned privatisations and cuts in the minimum wage, pensions and the public sector workforce.
The ECB has given the Greek central bank a green light to provide the country’s banks with up to €60 billion in emergency liquidity if needed, two people familiar with the matter said. The ECB declined comment.
Without bailout funding, Greece faces a budget shortfall of at least €9 billion this year since tax revenues are running below forecast, it has renounced some privatisation proceeds and it has made uncosted new spending promises.
The previous conservative-led government was counting on tapping up to €11.5 billion in unspent bank rescue funds, but that requires the agreement of the eurozone bailout fund, which seems unlikely if Greece rejects an extended programme.
European Commission vice president Valdis Dombrovskis said Athens must extend its current bailout programme to gain time to negotiate a longer-term agreement.
“In the European Commission’s assessment the most realistic way forward is to... extend the duration of the programme for another couple months or half a year,” Dombrovskis told the Reuters Eurozone Summit.
Two Greek banks had already begun to tap the more costly emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated following the victory of the hard left Syriza party in a January 25 election, banking sources had said.
The health of Greece’s big banks is central to keeping the country afloat.
Bundesbank chief Jens Weidmann said even emergency lending from the Bank of Greece should be a short-term measure. That credit line can be stopped if a two-thirds majority on the ECB Governing Council vote to do so although such a decision would likely lead to the collapse of Greece’s financial system.
Speaking later in Venice, Weidmann demanded that countries bear the consequences of their own fiscal decisions and warned that any move to bail out a eurozone member could lead to the spread of doubts about solvency.