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Greece: Euro finance chief warns about debt write-off Greece: Germany warns over debt commitments
(about 8 hours later)
Greece's new government will find little support among eurozone policymakers for a debt write-off, a senior finance chief has said. Germany has warned the new Greek government that it must live up to its commitments to its creditors.
Jeroen Dijsselbloem, who heads the eurozone finance ministers' group, said Greece must "stick to the rules". German government spokesman Steffan Seibert said it was important for Greece to "take measures so that the economic recovery continues".
Speaking before a Eurogroup meeting on Monday, he said; "There is very little support for a write off in Europe." His comments were echoed by the head of the eurozone finance ministers' group.
It followed anti-austerity party Syriza's election win, which initially sparked big falls on financial markets. The far-left Syriza party, which won Sunday's poll, wants to scrap austerity measures demanded by international lenders, and renegotiate debt payments.
The euro earlier fell to an 11-year low against the dollar, while the Athens stock market fell more than 5%. The markets had recovered by mid-morning, with the main share indexes in London, Paris and Frankfurt also reversing earlier falls on hopes that a compromise over Greece's bailout terms might be found. However Jeroen Dijsselbloem, president of the Eurogroup, said on Monday: "There is very little support for a write-off in Europe."
Syriza wants to renegotiate the €240bn bailout and slow austerity cuts. Speaking after a meeting of eurozone finance ministers in Brussels, he said members should "abide by the rules and commitments".
But the party's leader Alexis Tsipras helped calm investors' nerves when he said in a speech that he wanted negotiation, not confrontation, with Greece's international lenders. Meanwhile the German government said that Greece's new leadership should take measures to ensure the economic recovery continues.
"The new Greek government will be ready to co-operate and negotiate for the first time with our peers a just, mutually beneficial and viable solution," Mr Tsipras said. "A part of that is Greece holding to its prior commitments and that the new government be tied in to the reform's achievements," government spokesman Steffan Seibert said.
Market reaction
Syriza's victory has caused some concern in the financial markets.
In a volatile start to the week the euro briefly touched an 11-year low against the dollar, before recovering to trade almost 0.7% higher against the US currency.
In Athens the stock market closed 3.2% lower, with particularly heavy losses for Piraeus Bank which fell 17.6% and Alpha Bank which fell 11.6%.
Syriza leader Alexis Tsipras helped calm investors' nerves when he said in a speech that he wanted negotiation, not confrontation, with international lenders.
"The new Greek government will be ready to co-operate and negotiate for the first time with our peers a just, mutually beneficial and viable solution," Mr Tsipras said following his election win.
The troika of lenders that bailed out Greece - the European Union, European Central Bank, and International Monetary Fund - imposed big budgetary cuts and restructuring in return for the money.The troika of lenders that bailed out Greece - the European Union, European Central Bank, and International Monetary Fund - imposed big budgetary cuts and restructuring in return for the money.
But Mr Tsipras said: "The troika for Greece is the thing of the past."But Mr Tsipras said: "The troika for Greece is the thing of the past."
However, Mr Dijsselbloem, the Dutch finance minister and chairman of the Eurogroup, told reporters on arriving in Brussels for a meeting of finance ministers: "The most important thing is that if you remain in the eurozone you stick to the rules we have. That's true for all countries. Analysis: Robert Peston, BBC economics editor
"There has been a lot of easing of the debt already. In the coming years the interest for Greece will be very low. They get a lot of time to pay back loans so the question is whether more has to be done there," he said. If Syriza were to win its negotiations with the rest of the eurozone, other anti-austerity parties would look more credible to voters. The victory of protectionist Marine le Pen in France's presidential election would be an interesting test of markets' sangfroid.
And if Syriza were to lose in talks with Brussels and Berlin, and the final rupture of Greece from the euro were to take place, investors might well pull their savings from any eurozone country where nationalists are in the ascendant.
So why are investors not in a state of frenzied panic? Why have the euro and stock markets bounced a bit? One slightly implausible explanation is that investors believe the eurozone would actually be stronger without Greece, so long as no other big country followed it out the door.
More likely is that they believe reason will prevail, and Berlin will sanction a write-off of Greece's excessive debts.
Robert Peston: Full analysis
A turning point for the EU?
Tears of joy at Syriza party
What next?
'Stand-off''Stand-off'
The euro briefly fell as low as $1.1088, the lowest level against the dollar in more than 11 years, but in mid-morning trading was 0.4% higher at $1.125. Greece's current bailout programme ends in February, and economists say a short-term deal will be negotiated, buying time for more difficult negotiations.
The euro had already been under pressure following last week's announcement of a new stimulus programme by the European Central Bank.
Yields on Greece's 10-year government bonds rose 19 basis points to 8.95%, but are still below the level before last week's ECB stimulus programme was announced.
However, yields on three-year bonds rose much more sharply, up 68 points to 10.89%. The rise reflects investors' concerns about short-term risks of a debt restructuring over the coming months.
Greece's current bailout programme ends in February, and economists say a short-term deal will be negotiated, although difficult talks lie ahead. Germany has indicated that it is not prepared to renegotiate the bailout terms, raising the prospect that Greece could end up leaving the eurozone.
"There is a danger of a prolonged stand-off with the troika as Syriza attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage," said Jonathan Loynes, chief European economist at Capital Economics."There is a danger of a prolonged stand-off with the troika as Syriza attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage," said Jonathan Loynes, chief European economist at Capital Economics.
Michael Hewson, chief market analyst at CMC Markets, said: "Tsipras's comments don't appear to leave any room for doubt as he stated that the troika and the bailouts belong to the past,. Michael Hewson, chief market analyst at CMC Markets, said: "You can be almost certain that these negotiations will be watched carefully by the anti-austerity movements in Spain, Portugal, Italy and France to see what measures if any Greece is able to get out of EU politicians to deal with the problem of Greece's debt, and the terms of the bailout programme."
"You can be almost certain that these negotiations will be watched carefully by the anti-austerity movements in Spain, Portugal, Italy and France to see what measures if any Greece is able to get out of EU politicians to deal with the problem of Greece's debt, and the terms of the bailout programme." UK Chancellor George Osborne urged all sides to "act responsibly" in any negotiations over Greece's bailout terms. He told the BBC that he understood why, with the Greek economy in trouble, voters were "looking for other answers".
The UK Chancellor, George Osborne, urged all sides to "act responsibly" in any forthcoming negotiations over Greece's bailout terms. He told BBC Radio 4's Today programme that he understood why, with the Greek economy in trouble, voters were "looking for other answers". In an indication of the nervousness on the financial markets, yields on three-year government bonds rose by more than 2 percentage points to 12.36%.
But he warned that Syriza's election promises to spend more on public services and slow the pace of cuts were unlikely to work. "If you take at face value all the things that the new Greek government has promised, including big increases in public expenditure, I think that will be very difficult to deliver," he said. The rise reflects investors' concerns about short-term risks of a debt restructuring over the coming months.
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