Greece debt standoff: George Osborne urges Athens and Brussels to strike deal


The British chancellor, George Osborne, has warned that the standoff between Greece and the eurozone poses “the greatest risk to the global economy” after meeting the new Greek finance minister.

The chancellor hosted a meeting at 11 Downing Street with his Greek counterpart, Yanis Varoufakis, who is on a whistlestop tour of Europe to win support for a renegotiated debt deal.

After the meeting, Osborne warned that the confrontation could affect the stability of the eurozone, the UK’s biggest trading partner.

“We had a constructive discussion, and it is clear that the standoff between Greece and the eurozone is the greatest risk to the global economy,” Osborne said. “I urge the Greek finance minister to act responsibly but it’s also important that the eurozone has a better plan for jobs and growth.

“It is a rising threat to the British economy. And we have got to make sure that in Europe, as in Britain, we choose competence over chaos.”

Varoufakis, fresh from talks in France on Sunday, was in London before meetings with the Italian prime minister, Matteo Renzi, and with the head of the European commission, Jean-Claude Juncker.

After the meeting in London, Varoufakis said he had agreed with Osborne that it was time to stop painting Greece as a burden on the rest of Europe.

“[We have] a determination to put an end to the extended pretence cycle which has rendered Greece a festering wound on the side of the eurozone,” Varoufakis told Channel 4 News.

The economist, who was appointed finance minister last week after anti-austerity party Syriza swept to power, has offered to produce proposals for a reworked debt deal within a month. He has appointed Lazard, the US investment bank, to advise on Greece’s negotiations about its debt, which amounts to more than 175% of GDP.

Syriza insists it will make good on its promises to halve Greece’s debt obligations and scrap a range of swingeing budget measures that were imposed in exchange for the loans. It has already started to step back from some of the measures attached to the bailout, undoing privatisations.

The current bailout package officially expires on 28 February but it is widely hoped that deadline will be extended so that the European Central Bank is allowed to continue providing funding for Greek banks. The new government in Athens wants a bridging deal to allow time for a new, more manageable debt agreement to be negotiated.

But Varoufakis and his party face opposition from Germany, where leader Angela Merkel has ruled out further debt cuts from its creditor nations.

Greece’s new prime minister, Alexis Tsipras, is also touring European capitals this week and on his first stop in Cyprus, sought to emphasise that his government was seeking a deal on debt, and not about to walk away from its creditors.

“We are in substantial negotiations with our partners in Europe and those that have lent to us. We have obligations towards them,” Tsipras said at a news conference.

Tsipras also ruled out seeking aid from Russia, which had suggested it would be open to calls for help from Athens.

His party won the election on a promise to ditch the strict austerity rules of Greece’s current bailout deal with the European Union, European Central Bank and International Monetary Fund “troika”.

But some commentators have warned he will not be able to align his anti-austerity vow to voters with an ambition to stay in the eurozone. They warn that Brussels officials will be loth to set any precedents by forgiving Greek debt.

“Tsipras really is between a rock and a hard place. He has two basic choices. Either he effectively breaks his election promises and accepts the Troika’s conditions for continued financial support … or Greece leaves the euro,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group.

“There is still enormous political will within the commission, France and Germany for keeping Greece within the eurozone. But not at any price – and certainly not at the price of tearing up the rule-book for euro membership.”

Germany has been adamant that eurozone creditor nations must hold the line on Greece’s debt. Merkel has said Tsipras would be a “welcome guest” in Berlin. At the latest, the two leaders will meet at a European summit on 12 February.

Barack Obama added to the debate in a CNN interview, in which he warned that creditors could not continue squeezing the country. “You cannot keep on squeezing countries that are in the midst of depression. At some point, there has to be a growth strategy in order to pay off their debts and eliminate some of their deficits.”

His comments brought relief to Greek stockmarkets where the main ATG index gained more than 4%. Yields on Greek government bonds came off their highs as signs of a more conciliatory approach from the new government eased fears in debt markets over the chances of a default or restructuring.

Powered by article was written by Katie Allen, for The Guardian on Monday 2nd February 2015 17.41 Europe/London © Guardian News and Media Limited 2010


JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts