Greek debt talks lead to game of brinkmanship

Greece’s new leftist government appealed to the Central Bank yesterday to keep its banks afloat and vowed to respect EU rules as it seeks a negotiated solution with eurozone partners to reduce its debt burden.

Finance minister Yanis Varoufakis said that after meeting ECB president Mario Draghi in Frankfurt that he believed Athens could count on central bank support during the short period it would take to conclude talks with international lenders.

Banking sources told Reuters two Greek banks have begun to receive emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated after the victory of the hard left Syriza party in a general election on Jan. 25. The Greek government wants that funding to continue because if the ECB were to halt it, Greek banks could collapse, forcing the country out of the eurozone.

Promising to end five years of austerity, Prime Minister Alexis Tsipras and Varoufakis are meeting senior officials across Europe to seek support for a new agreement on Greece’s debt. European Council president Donald Tusk said after meeting Tsipras in Brussels that any solution must be acceptable to all EU states, a veiled reference to Germany, Greece’s biggest creditor which takes the hardest line on fiscal discipline.

“Those negotiations ... will be difficult, will require cooperation and dialogue as well as determined efforts by Greece,” Tusk said.

Tsipras, 40, said after talks with European Commission president Jean-Claude Juncker that Greece would find a solution to its economic problems within the framework of EU law. There was no agreement yet, but talks were going in the right direction, he said.

After meeting Draghi, Varoufakis said: “The ECB is the central bank of Greece ... The ECB will do whatever it takes to support the member states in the eurozone. I have no doubt that we can conclude our discussions with our European partners, as well as with the IMF and the ECB, in a very short space of time so that we can kickstart the Greek economy.”

Without the support of its creditors and the ECB, Greece would find itself back in an acute financial crisis. Unable to tap the markets because of sky-high borrowing costs, the government has enough cash to meet its funding needs for the next couple of months. But it faces around €10bn of debt repayments over the summer.

The ECB made no comment on the talks. Its governing council was to discuss whether to extend emergency funding for Greek banks, on what conditions and for how long. Sources familiar with ECB thinking said Athens needs to be in a bailout programme or negotiating a new one to qualify for emergency funding.

With the Greek public determined to cast off the stigma of supervision by a troika of EU, IMF. and ECB inspectors, and to regain economic sovereignty, the semantics of any new arrangement may be crucial. A source familiar with the Greek position said after the talks with Draghi: “We are thinking of a bridging programme. You may not call it a ‘programme’ for political reasons but perhaps a contract.”

ECB officials in the meeting talked about the rules on emergency funding and their desire that the Greeks reach an interim arrangement with the Eurogroup of eurozone finance ministers, which next meets on February 16, the source said.

Reuters