Greece to prioritize IMF repayments but wants talks on ECB-held bonds, says Varoufakis

Greece will prioritize debt repayments to the International Monetary Fund, some of which come due in March, but repayments to the European Central Bank are «in a different league» and will need discussion with Greece’s creditors, the country’s finance minister said Saturday.

In an interview with The Associated Press, Yanis Varoufakis also said Athens intends to start discussions with its creditors on debt rescheduling in order to make the country’s massive debt sustainable, at the same time as working on reform measures that need to be cemented by April, the finance minister said Saturday.

“The IMF repayments of course we are going to prioritize, we are not going to be the first country not to meet our obligations to the IMF,» the 53-year-old said, speaking in his office in the finance ministry overlooking Athens’ central square and the country’s parliament. «We shall squeeze blood out of stone if we need to do this on our own, and we shall do it.”

However, «the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions.”

The ECB has always insisted on full repayment and it’s not clear they would accept a rescheduling.

Greece faces IMF repayments in March of about 1.5 billion euros ($1.69 billion), and about 6.7 billion euros ($7.5 billion) to the ECB in the summer. But it is facing a cash crunch and will struggle with scheduled repayment of its debts.

Athens wouldn’t ask for a delay in repayment in its ECB obligations, the minister noted, but rather something that would make the repayments easier to achieve.

“I do not believe the ECB would accept a delay, but what we can do is we can package a deal that makes these repayments palatable and reasonably doable as part of our overall negotiation regarding the Greek debt, and the next … contract for growth for the Greek economy between us and the partners.”

Last week, Greece won a four-month extension to its 240 billion-euro ($270 billion) international loan agreement earlier this month in a deal with the other members of the 19-nation eurozone. In return, Athens has pledged a series of budget reforms, which for now contain no details but will have to be turned into concrete measures by April.

Those measures, Varoufakis said, were Greece’s priority, but tackling the country’s oversize debt was also necessary.

“The April agreement concerns reforms. And this is our imperative,» he said.

“At the same time, and independently of the April agreement … we intend to begin the conversation with our partners and institutions regarding debt sustainability and debt rescheduling.”

For this, Athens will make proposals with the aim of helping nominal gross domestic product grow and to maximize its repayments in real terms, Varoufakis said.

“We will be proposing a menu of swaps between new instruments, new public financially engineered instruments and segments of our debt.”

Greece’s debt currently stands at 315 billion euros, or 176 percent of GDP — a level many say is unsustainable and can never be paid back in full.

The new left-wing government was elected on Jan. 25 on promises of cancelling the austerity measures that accompanied Greece’s international bailout and seeking forgiveness for most of the country’s debt.

But to win the agreement for Greece’s four-month loan extension, the country committed to honoring its financial obligations «fully and timely.”

The agreement also stipulates Athens will not receive any of the pending 7.5 billion euros in the last bailout installment it is due until it submits all its reforms and passes a review by its creditors.

This has left the country’s coffers close to running dry.

“It would be excellent if we could agree with our partners to smooth over this cash flow hump that we’re facing over the next few months for the benefits of everyone,» Varoufakis said. «But for us, the prerequisite is that we reboot our economic policy in Greece, in conjunction with the institutions and our partners, so as to make sure that this financing of the cash flow problem is not done at the expense of long-term sustainability.”

One thing Greece must do «very fast indeed» is collect tax funds, the minister stressed, noting that the country currently has 76 billion euros ($85 billion) in tax arrears and the government needed to find a way of helping those who owe money to make at least partial payments.

“Let me be clear. There will be no (tax) amnesty. There will be a series of measures that encourage repayment or partial repayment without an amnesty, certainly no haircut to the capital owed to the Greek state.”

Athens will inform its creditors of what it is doing, «but at the same time I need to state that, for obvious reasons, for reasons that anyone can see, time is of the essence.”

With no details or specific figures laid out in Greece’s extension agreement, Athens has argued it has room for interpretation on certain points — something Varoufakis has dubbed «creative ambiguity.”

“What we all did was to find common ground. And the way you find common ground when you start from quite disparate positions is by using terms that allow for multiple interpretations in order to create room for agreement,» he said.

“It was not an attempt towards subterfuge, it was not an attempt to usurp any process whatsoever. It was an attempt to find common ground, and I think that we all indulged in it collectively in the eurogroup,» he added, referring to the meeting of eurozone finance ministers.

This has led to different approaches to certain subjects in Athens and Berlin, such as on the primary surplus — the budget without debt servicing — Greece must produce.

Its original bailout specified it must produce a 3 percent primary surplus this year, and 4.5 percent next year. Germany, the largest single contributor to the bailout, insists this must be adhered to.

German Finance Ministry spokeswoman Marianne Kothe said Friday that leeway was only given for this year. «That means that the target agreed in the program — the figure of 4.5 percent of gross domestic product is important here — still goes.”

But the Greek minister disputes the interpretation.

“This is not my understanding of what we agreed to,» he said.

Germany ratified the loan extension in its parliament Friday. But in Greece, the government has not yet clarified whether it will do so or whether the deal can be ratified through legislative decree.

Varoufakis said he saw no reason to put the deal before lawmakers at the moment.

“We are certainly going to bring to parliament anything that alters the loan agreement, especially in April,» he said.

“At the moment, all we’ve done was to extend for a few months an existing agreement. That I do not believe needs to go through parliament because nothing changes.”


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