Finance Minister Yanis Varoufakis set the clock ticking on Greece’s standoff with the euro area on Friday saying he’s ready to take his chances without a financial backstop rather than submit to more austerity.
The new government may be operating without a financial safety net for the first time in five years by March after Varoufakis challenged the euro area to agree to a new framework of support that allows for more spending. Greece won’t engage with officials from the troika who have been policing the conditions of its rescue since 2010, he said at a joint press conference with Eurogroup Chief Jeroen Dijsselbloem in Athens.
“We don’t plan to cooperate with that committee,” Varoufakis said. “The Greek state has a future, but what we won’t accept has a future is the self-perpetuating crisis of deflation and unsustainable debt.”
The standoff could see Greek banks effectively excluded from European Central Bank liquidity operations and the government with no source of funding, having rejected European aid while still shut out of international markets. Outgoing Prime Minister Antonis Samaras said last month the government may run short of financing as early as March.
Greece has a special dispensation from the ECB at the moment because it’s complying with a bailout program. That means its debt can be used in central bank refinancing operations even though it is rated junk.
“There will be no surprises if we find out that a country is below that rating and there’s no longer a program that that waiver disappears,” ECB Vice President Vitor Constancio said at an event in Cambridge, England, on Saturday.
Greek bonds tumbled, with the yield on three-year government debt rising 187 basis points to 19.15 percent. Bank stocks fell 1.6 percent following Varoufakis’s statement after gaining as much as 9.5 percent in early trading.
“Europe will continue to show solidarity with Greece, as well as other countries particularly affected by the crisis, if these countries undertake their own reforms and savings efforts,” German chancellor Angela Merkel said in an interview with Hamburger Abendblatt.
Prime Minister Alexis Tsipras briefed Dijsselbloem for about half an hour before the Dutch minister met Varoufakis. The Greek government wants a new plan to focus on combating corruption and boosting public investment instead of cutting the deficit.
While Varoufakis said he intends to balance the budget, that proposal hinges on the euro area and the European Central Bank agreeing to write down Greece’s public debt, a suggestion that has been met with skepticism by officials across the rest of Europe.
Euro-area governments are “committed to providing support for Greece during the life of the program and beyond until it has regained market access, provided Greece fully complies with the requirements and the objectives of the program,” Dijsselbloem said. “I had several constructive meetings and talks with the members of the new Greek government.”
“In diplomatic parlance, they say that talks were constructive and honest when they have ended in disagreement,” European Parliament President Martin Schulz said after his meeting with Tsipras on Thursday.
Since the talks with Dijsselbloem, Varoufakis has brought forward a meeting with French Finance Minister Michel Sapin to Sunday. He struck a more conciliatory tone in an interview published Saturday in Agora newspaper
“What is needed is a bridge agreement between the old program, which we reject, and the new deal which will come out of the negotiations,” Varoufakis said.
Still, the government also took the steps in rolling back the austerity program the euro area demanded as a condition of its support. Tsipras asked for the resignation of Emmanuel Kondylis, chairman of the fund overseeing the country’s privatization program, and Paschalis Bouhoris, the institution’s Chief Executive Officer, a government spokeswoman said late Friday, asking not to be named in line with official policy.
Dijsselbloem said euro-area ministers will decide what to do once the Greek program ends before its Feb. 28 expiry date.
German Finance Ministry Spokesman Martin Jaeger said earlier on Friday that Greece’s demand for a writedown is “outside reality” and the financial lifeline that has kept the country afloat since 2010 will expire unless Tsipras shows a “clear willingness” to meet the country’s existing agreements.
“The announcements from Athens are so far going in the opposite direction,” Jaeger told reporters in Berlin.