ECONOMY

Greece asks ECB to keep banks afloat as Tsipras pitches deal

Greek Prime Minister Alexis Tsipras began the hunt for allies against German demands for austerity as his week-old government appealed to the European Central Bank not to shut off the money tap.

Finance Minister Yanis Varoufakis said his country won’t take any more aid under its existing bailout agreement and wants a new deal with its official creditors by the end of May. While Greece tries to wring concessions on its debt and spending plans, it needs the ECB’s help to keep its banks afloat, Varoufakis said at a briefing in Paris late Sunday.

“We’re not going to ask for any more loans,” Varoufakis said after meeting his French counterpart, Michel Sapin. “During this period, it is perfectly possible in conjunction with the ECB to establish the liquidity provisions that are necessary.”

Tsipras, who issued a statement Saturday promising to stick by Greece’s financial obligations, is seeking to repair damage after a rocky first week. Bond yields spiraled and banks stocks plummeted after German Chancellor Angela Merkel stonewalled his plans to ramp up spending and write down debt. The Greek leader visits Cyprus on Monday before trips to Rome, Paris and Brussels.

He’s not scheduled to see Merkel, the biggest contributor to Greece’s financial rescue, until a European Union summit on Feb. 12.

Merkel wants to avoid getting drawn into a direct confrontation with Tsipras and is unlikely to agree to a face- to-face meeting with him at next week’s gathering of leaders, according to a German government official who asked not to be named because the discussions are private.

Merkel’s aim

The chancellor’s goal is to show Tsipras that he is isolated, the official said. What’s more, she sees little margin for maneuver on the conditions of any further support for Greece and is skeptical about Tsipras’s claims that he can raise revenue by cutting corruption and increasing taxes on the rich, the official added.

“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,” Merkel said in an interview with Hamburger Abendblatt published Saturday.

While euro-area officials want Greece to stick to the austerity demands of its existing bailout agreement, Tsipras is seeking a debt writedown so he can increase public spending.

The danger is that the Greek financial system is left without funding long before Tsipras’s May deadline for a deal.

At the moment, the country has a special dispensation from the ECB because it’s considered to be complying with the bailout program. That means its debt can be used in central bank refinancing operations even though it is rated junk.

‘No surprises’

“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 have tumbled since Tsipras’s Jan. 25 election victory. Ten-year yields posted their biggest weekly increase since May 2012 and bank stocks have dropped 38 percent.

The French government has so far offered the strongest encouragement to Greece.

“It’s legitimate for them to say we want to discuss how we can lower the weight of this debt,” Sapin said Sunday. “We can discuss, we can postpone, we can alleviate. But we won’t cancel it.”

Obama’s view

US President Barack Obama weighed in, questioning demands further austerity. “You cannot keep on squeezing countries that are in the midst of depression,” he said on CNN Sunday. “When you have an economy that is in freefall there has to be a growth strategy and not simply an effort to squeeze more and more out of a population that is hurting worse and worse.”

Tsipras meanwhile has already started to roll back the austerity program. He asked for the resignation of Emmanuel Kondylis, chairman of the fund overseeing the country’s privatization program, and Paschalis Bouhoris, its chief executive officer, a spokeswoman for the fund said late Friday.

The Greek Finance Ministry on Saturday hired Lazard Ltd. to advise on its debt strategy. Prior to the appointment, Matthieu Pigasse, the head of Lazard’s Paris office who has advised Greece in the past, said a 50 percent haircut would give Greece a “reasonable” debt burden.

“We need time to breathe and create our own medium-term recovery program,” Tsipras said in a statement e-mailed to Bloomberg News on Saturday. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.” [Bloomberg]