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19th Jan 2020

EU to Greece: No debt relief, stick to your promises

  • Jyrki Katainen: "We don't change our policy according to elections" (Photo: consilium.europa.eu)

Top EU officials have warned the new government in Greece that it needs to stick to the bailout requirements and that there will be no debt relief.

"There is no question of cancelling the Greek debt. Other eurozone countries will not accept this," EU commission chief Jean-Claude Juncker said in an interview published Thursday (29 January) in Le Figaro.

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Juncker had a phone conversation on Monday with the new Greek Prime Minister, Alexis Tsipras, who was elected on an anti-austerity platform and has made debt forgiveness the core topic of his campaign.

"He told me that he doesn't consider himself a danger, but a challenge for Europe. And I replied that Europe is not a danger for Greece, but a challenge," Juncker told Le Figaro.

The EU commission chief said "arrangements are possible," but warned against expecting a fundamental change of the bailout terms. "We respect the democratic elections in Greece, but Greece also needs to respect the others, the public opinions and the parliamentarians from the rest of Europe," Juncker said.

A similar message was conveyed Wednesday by Juncker's deputy, Jyrki Katainen, who in a press conference said that all commissioners were unanimous about the fact that Greece is expected to fulfil its commitments.

"The real economy has not changed after the elections. The situation stays the same and the European Commission must treat all governments similarly. We don't change our policy according to elections," Katainen said.

He said Juncker had invited the new Greek government to Brussels but no dates have been yet confirmed.

"We need to be starting working very soon, time is running out. We have to get a clear picture of what is happening and get a confirmation from the Greek government that they will fulfil what they promised to do. This is not a matter of institutions, this is about confidence of citizens in Europe and the commitments they made to each other," said Katainen, a former Finnish prime minister who negotiated extra collaterals on the Greek bailout.

Meanwhile, in Athens, Tsipras has halted the privatisation of ports and the sale of national energy providers agreed under the bailout deal.

Tsipras is also planning to re-hire some of the public sector workers laid off as part of the austerity requirements and has announced a hike in pensions for poor people.

"We are coming in to radically change the way that policies and administration are conducted in this country," he said.

Greek bank stocks have fallen by over 40 percent since elections took place on Sunday, with the policy announcements alone prompting a drop by over 26 percent on Wednesday.

Greece's bailout was supposed to end in December, but was extended for another two months so elections could take place and the terms of exit be negotiated with the new government.

Eurogroup chief Jeroen Dijsselbloem, representing eurozone finance ministers, will meet the newly appointed Greek finance minister, Yanis Varoufakis, on Friday for a first discussion about what Greece still needs to do to get the last tranche of bailout money and not descend into chaos once the program is over.

"There won't be a duel between Greece and Europe," Varoufakis said in his first press conference, adding that he will also meet the finance ministers of Italy and France in the coming days.

France so far has ruled out debt forgiveness for Greece, but it said it would be open to extending payment deadlines and lowering interest rates to make the debt burden (177% of the country's GDP) easier to handle.

Support for halving Greece's debt meanwhile came from an ex-IMF official, Reza Moghadam, who oversaw the Greek bailout negotiations between 2010-2014.

Moghadam, who now works for the investment bank Morgan Stanley, wrote in the Financial Times on Wednesday that the Greek debt is simply too high for the country to repay just by cutting expenses.

"This would threaten social cohesion and wreck any prospect of economic recovery. Politically, it is out of reach," Moghadam argues. Instead, Europe should halve Greece debt "in exchange for reform."

"This would be consistent with debt “substantially below 110 per cent of GDP”, which the IMF pushed for and eurozone ministers agreed to in 2012. And it would not rely on what have proved to be over-optimistic assumptions on Greek growth, inflation, fiscal effort and social cohesion," he wrote.

Who's in the new Greek cabinet?

The new Greek cabinet contains very wide-ranging ideologies and traditions, which will affect how the government is able to negotiate with Brussels and Berlin.

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