Greece drops hopes of debt write-off, outlines ‘menu’ of options

Greek Finance Minister Yanis Varoufakis. Athens, 28 January. [Reuters]

Greece’s new government dropped calls for a write-off of its foreign debt and proposed ending a standoff with its creditors by swapping its outstanding debt for growth-linked bonds, its finance minister said on Monday (2 February), one week after winning a national election on an anti-austerity platform.

Finance Minister Yanis Varoufakis was in London to reassure private investors that he was not seeking a showdown with Brussels over a new debt agreement.

The reported proposals, which included a pledge to reform the Greek economy, contrast sharply with the government’s strident vows in Athens last week to ditch the tough austerity conditions imposed under its existing bailout.

>> Read: Tsipras promises radical change, markets tumble

‘Menu of debt swaps’

Varoufakis called his plan a “menu of debt swaps” that meant Athens would no longer call for a write-off of Greece’s 315 billion euros of foreign debt, the Financial Times reported.

The menu would include two types of new bonds: one indexed to nominal economic growth, and one he called “perpetual bonds” to replace European Central Bank-owned Greek bonds.

Indexed to economic growth, the bonds would replace Greece’s European rescue loans, Varoufakis said.

“What I’ll say to our partners is that we are putting together a combination of a primary budget surplus, and a reform agenda,” Varoufakis told the newspaper.

“I’ll say, ‘Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece’.”

It was not clear whether the debt swap proposals would be accepted by European heavyweight Germany, which opposes softening the terms.

“These bonds held by the ECB right now can be restructured. It’s possible to turn it into perpetual bonds to be serviced, or growth-linked debt,” according to a source with direct knowledge of the plan. “It’s the same with a proportion of the other bilateral bonds held by the official sector.”

Germany’s Finance Minister Wolfgang Schäuble said earlier that Berlin would not accept any unilateral changes to Greece’s debt programme.

>> Read: Germany presses new Greek leaders to maintain reforms

Targeting wealthy tax-evaders

At the same time, Athens also planned to target wealthy tax-evaders and post primary budget surpluses of 1 to 1.5% of gross domestic product, Varoufakis told the FT, even if it meant his party, Syriza, could not fulfill all the spending promises on which it was elected.

Varoufakis, and Greece’s new Prime Minister Alexis Tsipras, are touring European capitals in a diplomatic offensive to replace Greece’s bailout accord with the European Union, ECB and International Monetary Fund, known as the “troika”.

On Tuesday, Tsipras will meet Italy’s Prime Minister Matteo Renzi, a young centre-left leader thought to be among those most sympathetic to calls for leniency.

Varoufakis said he was confident he could reach a negotiated settlement soon, telling Britain’s Channel 4 news it was time to stop Greece being a “festering wound” on Europe and dismissing a suggestion the ECB could block a new deal.

In a statement released by the Greek Finance Ministry early on Tuesday in Athens, Varoufakis said the government’s aim was to pull the country out of “debt serfdom”.

Milder message

After a tumultuous first week in which the firebrand government indicated it intended to keep campaign promises to ditch the tough austerity conditions imposed under its existing bailout, the emphasis this week appears to be on maintaining that a new deal is still possible.

“We are in substantial negotiations with our partners in Europe and those that have lent to us. We have obligations towards them,” Tsipras said at a news conference in Cyprus during his first foreign visit as prime minister.

When asked whether Greece would seek aid from Russia, which is a worsening standoff with Europe and the United States over Ukraine, he said: “Right now, there are no other thoughts on the table.” Germany said Russia would not be a viable substitute.

Greece, unable to borrow on the markets and facing pressure to extend the current support agreement when it expires on Feb. 28, is looking for a bridging deal to provide breathing space to propose a new debt arrangement.

Exactly how much time Athens has to reach a deal with its creditors remains to be seen. In theory, there are only weeks left: once the bailout expires at the end of February, the ECB could be obliged to pull the plug on funding for Greek banks. In practice, however, an alternative interim funding mechanism for the banks may be found.

After that, Greece has large debt payments due in March, although officials say it could have enough cash on hand to meet them, avoiding a crunch until later in the spring.


Tsipras repeated calls already made by Varoufakis for a mechanism of inspections by experts from the troika overseeing Greek finances to be dismantled and replaced by direct negotiations between Athens, the EU and IMF.

“I believe that this would be a mature and necessary development for Europe,” he said.

But Germany said “Nein”.

“The German government sees no reason to scrap this mechanism of evaluation by the troika,” Finance Ministry spokeswoman Christiane Wirtz said in Berlin.

Varoufakis, an outspoken economist who has likened EU austerity policies to “waterboarding”, began his European tour over the weekend in Paris, where the centre-left government is thought to be more sympathetic than others to the case for relaxing lending conditions.

He then moved to London to meet investors whose confidence is crucial, saying he was not in “a kind of Wild West showdown” with the EU, but aimed to strike a mutually beneficial deal to minimise the cost of the crisis for the average European.

French Finance Minister Michel Sapin said after meeting Varoufakis that Athens could not expect a straight debt write-off, but left the door open to other options that include giving Athens more time for repayment.

Varoufakis met about 100 banks and financial institutions in London. An organiser said one of the meetings had to be moved from an upmarket London members’ club, because Varoufakis wouldn’t wear a tie.

Varoufakis also met British officials, seeking more European allies, although Britain is not a eurozone member.

After meeting him, Britain’s finance minister, George Osborne, called the stand-off between Greece and the eurozone “the greatest risk to the global economy”.

“I urge the Greek finance minister to act responsibly, but it’s also important that the eurozone has a better plan for jobs and growth,” Osborne said.

The anti-austerity Syriza party marked a stunning victory in a Greek snap election held on 25 January, but did not ensure an absolute majority.

Its leader, Alexis Tsipras, said the “vicious cycle of austerity” wasover, triggering mixed reactions in the EU.

Tsipras stated that the Greek public debt is not viable, and asked for its restructuring, which amounts to 177% of GDP.

>> Read: Greek leftist scores victory over austerity

  • March: Greece's current bailout expires

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