EU will not yield to Greek demands for debt forgiveness

Athens told financial issues have not disappeared after Syriza win

The European Union showed a willingness on Monday to give Athens more time to pay its debts, but said it would not yield to a new Greek government's demands for debt forgiveness.

In its response to Greek anti-bailout party Syriza's election victory on Sunday, the EU warned that the country's economic problems had not disappeared and said that a debt reduction for Greece would be against euro zone rules and would send the wrong message to other members of the single currency.

Before any talks on more time for Greece to repay its debts can start, Athens must get an extension of its existing bailout to give itself time for negotiations on future economic policy and on longer loan maturity with international lenders.

"We are very motivated to work with the new Greek government to maintain the recovery path," said Jeroen Dijsselbloem, who chaired a meeting of euro zone finance ministers in Brussels to consider how to deal with Greece after the change of government.


But he said that Greece’s challenges, from mass unemployment to being shut out of financial markets, were still there and would need to be resolved in coordination with the euro zone.

“We all have to realise and the Greek people have to realise that the major problems in the Greek economy have not disappeared and haven’t even changed overnight because of the simple fact that an election took place,” Dijsselbloem said.

Bailout expiry

Europe's bailout programme for Greece, part of a €240 billion rescue package along with the International Monetary Fund, expires at midnight on February 28th and a failure to renew it would leave Athens unable to meet its financing needs.

With Greece facing repayments of about €10 billion this summer and shut out of financial markets because of its sky-high borrowing costs, investors fear that Syriza’s victory has set Athens on a collision course with international lenders.

But Mr Dijsselbloem sought to play down such concerns, saying he had already spoken to Yanis Varoufakis, Greece's likely new finance minister, for about 15 minutes by phone on Monday evening.

Syriza officials have previously said their government’s first priority would be to ask lenders for a few months of time so both sides can discuss their positions from scratch rather than picking up from where the previous government left off.

They resist the idea of extending a bailout programme that they are staunchly opposed to. Mr Tsipras last week dismissed the February 28th deadline when the bailout expires, saying he had until July to negotiate with lenders.

No funding

The extension of the bailout is needed because without it Athens will not be eligible for the European Central Bank’s plan of government bond purchases. If Greece refuses to service its debt owed to the euro zone it would not get any more money from euro zone governments and private investors would not lend to it either, officials said.

"This is not about restructuring past debt," Spain's economy minister Luis De Guindos told reporters. "They need a lot of financing in the coming months and Greece is not going to obtain that from financial markets."

Even though Syriza won the elections on promises of ending fiscal austerity and demanding debt forgiveness, German foreign minister Frank-Walter Steinmeier said Berlin expected it to stick to agreements with its euro zone partners.

“We offer to work with the Greek government, but we expect them to stand by agreements,” he said.

No forgiveness

Finnish prime minister Alexander Stubb said his country was ready to discuss an extension if the new government can commit to agreed contracts and promised structural reforms.

“We will not forgive loans but we are ready to discuss extending the bailout programme or maturities ... But this will not change the fact that Greece must continue economic reforms,” Mr Stubb told reporters.

European Central Bank board member Benoit Coeure said the ECB would not take part in any debt cut for Greece, but changes to the debt maturities were possible.

"There is no room for unilateral action in Europe, that doesn't exclude a discussion, for example, on the rescheduling of this debt," Mr Coeure told Europe 1 radio.

It was a message echoed across much of Europe, particularly in Germany, the biggest contributor to euro zone bailouts whose chancellor has led calls for budgetary rigour.