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After Voters in Greece Have Their Say, Country’s Creditors Seek Their Turn After Winning Over Voters, Greece’s New Government Must Face Creditors
(about 4 hours later)
ATHENS — Now comes the hard task of making good on a key campaign promise. ATHENS — As the new Greek prime minister turns to fulfilling his campaign pledge of renegotiating his country’s bailout loans and reducing its staggering debt burden, he may find that Greece’s international creditors will be harder to persuade than the country’s voters.
As Alexis Tsipras was sworn in as prime minister of Greece on Monday, the emotional proposals he and his leftist Syriza party made to beleaguered Greeks — with promises to end austerity, renegotiate the country’s international bailout and reduce Greece’s staggering debt burden — resonated far beyond this country. Riding a populist wave to victory, Alexis Tsipras, who was sworn into office on Monday, threw down the gauntlet to European officials who have pushed budget policies demanding sacrifices that many believe led to a grinding recession and high unemployment.
Greece’s international creditors may prove harder to persuade than the country’s voters. “We will bring an end to the vicious circle of austerity,” Mr. Tsipras promised a cheering crowd after his victory on Sunday.
Mr. Tsipras’s new coalition government, formed Monday with a right-wing fringe party that has taken a hard line toward austerity and the terms of Greece’s 240 billion euros, or $270 billion, in bailout loans, must contend with pressing financial issues as the country runs low on cash. While Mr. Tsipras has taken a potentially confrontational stance with the nation’s creditors, including Germany and the European Central Bank, analysts said time was on their side, not his. On Monday, European policy makers quickly made clear that — at least for now — they were unlikely to oblige Mr. Tsipras on his demands, especially his pledge to seek a write-down of Greece’s huge debt.
European politicians and financial officials are already making clear that they are unlikely to oblige Mr. Tsipras on his demand that some of Greece’s debts be written off. “I don’t think there’s a lot of support for that in the eurozone,” Jeroen Dijsselbloem, president of the group of eurozone finance ministers, said in Brussels.
“I don’t think there’s a lot of support for that in the eurozone,” Jeroen Dijsselbloem, the president of the group of eurozone finance ministers, said on Monday in Brussels. Nor were European officials inclined to accommodate his demands for Greece’s creditors to renegotiate the terms of a financial bailout program that has totaled 240 billion euros, or about $270 billion at current exchange rates.
It was still unclear on Monday whether Mr. Tsipras planned to move past populist election rhetoric and toward a more centrist negotiating position that analysts say is needed in dealing with Greece’s creditors, especially after vowing to end a “vicious circle of austerity.” “There are rules that must be met in the eurozone,” Christine Lagarde, managing director of the International Monetary Fund, said in an interview published on Monday by Le Monde. The I.M.F. is one of Greece’s three main creditors, along with the European Central Bank and the European Commission.
Mr. Tsipras has said the issue of debt relief concerns not only Greece, but other countries, too, as the currency union is now halfway through what threatens to be a decade of anemic economic growth. He has called for a European debt conference similar to the one held after World War II that wrote off half of Germany’s debt and extended the repayment period for the rest, to stoke a recovery. “We cannot make special exceptions for specific countries,” Ms. Lagarde said.
But analysts say that Mr. Tsipras may not have the luxury of floating grand regional strategies, as his country awaits its next allocation of bailout money — a €7 billion payment — that it needs to keep the government running and pay off looming debts to avoid a potential default. Still, as Mr. Tsipras moves to carry out his pledges, the standoff may ultimately find both sides reaching a middle ground — one on which Greece could move toward an eventual economic and social recovery, with European officials at least partly relaxing their insistence on strict budgetary discipline.
“It’s clear that the euro area is going to give Greece another extension of a few months for the new government to be formed and negotiations to begin,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.
Mr. Tsipras “may try to deliver a centrist swing,” Mr. Kirkegaard said, but if all that fails, “then you’re going to have a period of acute instability.”
Mr. Tsipras’s new coalition government, which his leftist party Syriza formed on Monday with a rightist fringe party that has taken its own hard line against austerity measures, does not have a lot of time. Greece needs its next allocation of bailout money — a €7 billion payment — to keep the government running and pay off looming debts to avoid a potential default.
But Mr. Tsipras, who once likened his stance toward Europe’s leaders as “playing poker,” has begun the game aggressively against the three big creditors, known as the troika.
In his victory speech, he seemed to invite a showdown. “The troika has no role to play in this country,” he told supporters. But then, without explaining the distinction, he vowed to negotiate with Greece’s European partners to produce “a fair solution so that Greece can come out of debt, and Europe can return to stability and social cohesion.”
Mr. Tsipras has insisted that the issue of debt relief concerns not only Greece but also other eurozone countries as the currency union, with 19 members, is now halfway through what threatens to be a decade of anemic economic growth. He has called for a European conference similar to the one held after World War II that wrote off half of West Germany’s debt and extended the repayment period for the rest, to stoke a recovery.
But some analysts say that Mr. Tsipras may not have the luxury of floating grand regional strategies.
“He needs to be able to find a solution that resumes financial flows to Greece, and he doesn’t have much time,” said Mohamed A. El-Erian, chief economic adviser at Allianz. “In this game of poker, there is a question of who of the many people sitting around the table will blink first.”“He needs to be able to find a solution that resumes financial flows to Greece, and he doesn’t have much time,” said Mohamed A. El-Erian, chief economic adviser at Allianz. “In this game of poker, there is a question of who of the many people sitting around the table will blink first.”
Those with whom Mr. Tsipras must deal, Mr. El-Erian noted, include Germany and European Union, the International Monetary Fund, the European Central Bank and private creditors. Those with whom Mr. Tsipras must deal, Mr. El-Erian noted, include not only the troika but also Germany — the biggest individual country contributor to the Greek bailout — as well as private creditors.
The €7 billion payment would be the last tranche from Greece’s bailout package. Mr. Tsipras has vowed not to adhere to the austerity conditions required for Greece to get the €7 billion payment, which would be the last installment from the bailout package. But Ms. Lagarde warned that Mr. Tsipras was conflating the notion of austerity with basic reforms needed to improve the Greek economy.
Greece has a €2.5 billion loan from the International Monetary Fund to retire by March, and billions more in debts to the European Central Bank due in July. “They must reform the efficiency of the state and get their tax collection system working,” she said in the interview with Le Monde. “That’s not austerity. Those are reforms that they still need to do.”
In the summer, Greece must also pay about €460 million to investors, including private equity and hedge funds that did not agree to participate three years ago in a write-down of the country’s debt held by private investors. Those bonds are covered by international law and must be honored if Greece is to avoid a default. Ms. Lagarde’s view matters in Athens because Greece has a €2.5 billion I.M.F. loan it is obliged to pay off by March, and billions more in debt to the European Central Bank that comes due in July.
In the summer, Greece must also pay about €460 million to investors, including private equity and hedge funds that did not agree to participate three years ago in a write-down of the country’s debt. Those bonds are covered by international law and must be honored if Greece is to avoid a default.
“Would a Syriza-led government honor that?” asked Jens Bastian, an economics consultant based in Athens and a former member of the European Commission’s task force on Greece. “Because for €460 million, you can feed a lot of homeless people. That could quickly become a hot-button issue for Tsipras.”“Would a Syriza-led government honor that?” asked Jens Bastian, an economics consultant based in Athens and a former member of the European Commission’s task force on Greece. “Because for €460 million, you can feed a lot of homeless people. That could quickly become a hot-button issue for Tsipras.”
The prospect that the new Greek government might not honor its debt obligations was a reason investors on Monday were demanding high yields, or interest rates, on the country’s bonds. The elections also create a quandary for the European Central Bank, which must balance its role as guarantor of financial stability in the eurozone with the fact that it holds about €25 billion in Greek government debt.
Mr. Tsipras also invited a showdown on Sunday with the so-called troika of lenders — the European Central Bank, the I.M.F. and the European Commission — suggesting that he would no longer deal with them. Mario Draghi, the president of the European Central Bank, has said that it may consider buying Greek bonds this summer under the stimulus program that he announced last week to help circulate more money through beleaguered European economies. That move could give Mr. Tsipras enough time to show that Greece can meet the conditions for its debt to be part of the program.
“The decision you have made makes the troika a thing of the past,” he said before a cheering audience. “The troika has no role to play in this country.”
The elections create a quandary in particular for the European Central Bank, which must balance its role as guarantor of financial stability in the eurozone with the fact that it holds about €25 billion in Greek government debt.
Mario Draghi, the European Central Bank’s president, said last week that the bank might consider buying Greek bonds this summer under the large program Mr. Draghi announced last week to help circulate more money through beleaguered European economies. That could give Mr. Tsipras enough time to show he is meeting conditions the European Central Bank would set forth for such bond buying.
The central bank has been a major Greek creditor since 2010, when it began buying government bonds to protect the country from international investors who were driving its interest rates to ruinous levels. At the same time that it protects its financial interests, though, the central bank must take care that political changes in Greece do not rekindle a eurozone crisis.
The European Central Bank on Monday declined to comment on the Greek election results, but the bank is unlikely to agree to accept any losses on the Greek bonds that it already owns.The European Central Bank on Monday declined to comment on the Greek election results, but the bank is unlikely to agree to accept any losses on the Greek bonds that it already owns.
“Greece has to pay, those are the rules of the European game,” Benoît Cœuré, a member of the executive board of the European Central Bank, said in an interview with the French radio station Europe 1 on Monday. Mr. Cœuré noted that European governments were the main owners of Greek bonds. Negotiations on debt relief “will be a discussion between Alexis Tsipras and the other governments,” Mr. Cœuré said. “Greece has to pay, those are the rules of the European game,” Benoît Coeuré, a member of the executive board of the European Central Bank, said in an interview with the French radio station Europe 1 on Monday. Mr. Coeuré noted that European governments were the main owners of Greek bonds.
Mr. Tsipras has said he is anxious to move into negotiations with European governments, which now hold 80 percent of Greece’s €319 billion in public debt. He aims to reduce that amount by at least half, to give the country more ability to breathe new life into its gasping economy. Mr. Tsipras has said he is anxious to move into negotiations with European governments, which now hold 80 percent of Greece’s €319 billion in public debt. He aims to reduce that amount by at least half, freeing up funds to breathe new life into the Greek economy.
But so far, his proposal has met with resistance from other eurozone countries, particularly ones like Germany that hold big portions of that debt. But so far, his proposal has met with resistance from other eurozone countries — particularly Germany.
“We are talking about taxpayer money in other countries,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics. “This would reduce the public debt in Greece, but it will increase the debt proportionally in other countries that forgive Greece’s debt,” he said. “We are talking about taxpayer money,” said Mr. Kirkegaard of the Peterson Institute. “This would reduce the public debt in Greece, but it will increase the debt proportionally in other countries that forgive Greece’s debt.”
“So this idea of just reducing the principal of the debt is naïve politically,” Mr. Kirkegaard added. He added: “This idea of just reducing the principal of the debt is naïve politically.”
Most analysts say that, in the end, both sides are likely to edge toward some sort of compromise to keep the eurozone intact. In Brussels on Monday, Mr. Dijsselbloem, the head of the group of eurozone finance ministers, said the group was open to talking with Mr. Tsipras’s government “as soon as they are up and running.”
In Brussels on Monday, Mr. Dijsselbloem, the head of the group of eurozone finance ministers, said it was open to talking with Mr. Tsipras’s government “as soon as they are up and running.”
“We are very ready to work with them and talk on the future of the program,” he added.
But when asked about concerns that the new government in Greece could write off the country’s debt, Mr. Dijsselbloem said any such action would receive little backing from governments in the eurozone.But when asked about concerns that the new government in Greece could write off the country’s debt, Mr. Dijsselbloem said any such action would receive little backing from governments in the eurozone.
“We already have done a lot to take off the debt burden,” he said, “so there doesn’t seem to be great urgency." France, which has had its own budgetary run-ins with the European establishment, offered more conciliatory words, and President François Hollande on Monday invited Mr. Tsipras to visit him in Paris.
At the same time, the French finance minister, Michel Sapin, spoke up for Mr. Tsipras when talking to reporters on Monday in Brussels.
“If this new government was elected, it’s also because Greece has lost 25 percent of its national wealth in the space of five years,” Mr. Sapin said. “That’s extremely heavy, extremely hard for people to bear."