Cyprus Mail

Greece isolated in euro zone, ministers to meet February 11 (Update 2)

By Jan  Strupczewski

Greece’s new government was isolated at its first meeting with senior euro zone officials but will have a chance to put forward its plans at a special meeting of finance ministers of the currency bloc next week, EU officials said on Friday.

Eurogroup finance ministers will discuss how to proceed with financial support for Athens at a special session next Wednesday in preparation for talks among European Union leaders on the issue the following day.

The meeting, to start at 1630 GMT in Brussels, will be a chance for the leftist-led government elected on Jan. 25 to explain how it wants to reform its economy and consolidate public finances while respecting commitments Greece accepted under previous governments.

Euro zone officials made no progress at a preparatory meeting on Thursday evening because the positions of Athens and other euro zone countries were so far apart.

“It was Greece against all others, basically one versus 18,” one official said, describing the discussions.

The new government is dominated by the hard-left Syriza party which campaigned on a platform of demanding a partial debt write-off, putting an end to austerity measures and reversing some of the reforms of last four years.

Prime Minister Alexis Tsipras and his ministers promised in their first days in office to raise the minimum wage, re-hire some sacked government employees and stop some privatisations.

This clashed with the commitments made by previous governments to the International Monetary Fund and euro zone countries, which have lent Athens a total of 240 billion euros.

The position of euro zone countries is more in line with that of Germany, which spell out in a paper prepared for the meeting that it did not agree to any rolling back of reforms or commitments made by previous Greek governments.

“There were no conclusions after the talks last night. It is up to the Greek government to tell us what they want to do,” one euro zone official said.

Greece is free to design its own reforms in line with Syriza’s campaign promises, as long as the end result is in line with commitments to stronger public finances, debt repayment and reforms, the official said.

“The overall policy mix may reflect the priorities of Syriza. But it has to make sense financially,” a second official said.

Time to reach a deal is short, because Greek banks will no longer be eligible to use Greek government bonds as collateral in daily refinancing operations with the European Central Bank from Feb. 11.

After that, they will have to rely on emergency liquidity assistance from the Greek central bank, which is more costly and can be stopped by the ECB if there are no prospects for a deal between the euro zone and Greece.

Moreover, some analysts say Greece could run out of cash as early as March if it does not get further euro zone help.

“Greece’s financing needs over the next five years may amount to 30-35 billion euros,” Unicredit bank said in a research note.

“However, if we set the primary surplus at 1-1.5 percent of GDP and assume that privatisations will stop, as requested by the Greek government, overall financing needs would rise to 60 billion euros,” Unicredit said.

“In any case, a very quick fix is needed because in 2015 there will be a peak in both redemptions and financing needs. Without external support, Greece could run out of cash as soon as March,” the bank said.

A European Commission official said the EU executive saw the best way forward as extending Greece’s existing programme. This would require Athens to request that in the coming days and an agreement at a Eurogroup meeting scheduled for Feb. 16.

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