Support from Renzi but ECB obstacle lies ahead

Greek Prime Minister Alexis Tsipras received encouragement from his Italian counterpart Matteo Renzi on Tuesday in Greece’s efforts to reach a new agreement with the eurozone but there are doubts about whether the European Central Bank will provide Athens with the liquidity it needs over the next few months.

“The conditions are there to arrive at an accord between EU institutions and Greek authorities,” Renzi said after holding talks with Tsipras in Rome, although he admitted that they did not go into the details of Greece’s position.

“We didn’t discuss the [new] proposals today but you will always find Italy ready to discuss them,” said Renzi, who leads a center-left government.

Finance Minister Yanis Varoufakis suggested on Monday that rather than seek a haircut, Greece would like to use interest-only “perpetual” bonds and exchange debt held by bailout creditors for repayment linked to growth.

“We will use all the means at our disposal to reach our target, and that target is to reduce the debt… [regardless] of the name and euphemisms it is given to make it more digestible,” Varoufakis said after holding talks with Italian Finance Minister Pier Carlo Padoan, also in Rome.

“The attention to growth is a priority to guarantee the sustainability of the Greek debt, to create new jobs in the country and to contribute to relieving the social impact of the crisis,” said Padoan.

However, Varoufakis could meet resistance in his plans from the ECB. He is due to meet the central bank’s President Mario Draghi on Wednesday but the Financial Times reported on Tuesday that the Italian is likely to reject the Greek minister’s request for the limit on the T-bills that Athens can issue to be raised by 10 billion euros from its current ceiling of 15 billion.

“The ECB will play hardball,” a eurozone official told the FT.

The Greek government had been hoping it would be able to issue more short-term debt to cover funding needs while negotiations on a new settlement take place. Greek banks would be the likely purchasers of T-bills and would also rely on the ECB to maintain their supply of liquidity.

Tsipras is due to meet European Commission President Jean-Claude Juncker and is hoping for a more encouraging response. Juncker said on Tuesday that the European Union was ready to “rearrange some of our policies,” but warned Tsipras he also had to be ready to compromise.

“It’s not just one EU member that has expressed a democratic choice, there are other public opinions too,” Juncker told the European Parliament.