Relenting on campaign promises, Greece’s new government has offered its lenders a bond swap instead of seeking debt relief, and said that it may not be able to meet its campaign promises for social spending.
The offer came from new Finance Minister Yanis Varoufakis for the coalition administration headed by Prime Minister and Radical Left SYRIZA leader Alexis Tsipras who had vowed to renegotiate the harsh terms that came with two bailouts of 240 billion euros ($272 billion) or walk away from at least half the debt.
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 ($360 billion) of foreign debt, the Financial Times reported.
“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’.”
Athens planned to target wealthy tax-evaders and post primary budget surpluses of 1 to 1.5 percent of gross domestic product, he told the paper, even if it meant his party, SYRIZA, could not fulfill all the spending promises on which it was elected.
But, faced with a growing confrontation with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that put up the money, the government dropped his insistence for a debt write-off and said it would also hold harmless private investors, Reuters reported.
Varoufakis, in London to reassure private investors that he was not seeking a showdown with Brussels over a new debt agreement, retreated sharply from the tough talk and hard line that he and Tsipras were holding.
Faced with reports from Greece that said he was caving in, Varoufakis said he wasn’t and that his comments were misinterpreted to mean that he didn’t say what he said.
“The government and the finance minister will not back down, irrespective of how grieved some people are by our determination,” he said in the statement.
Varoufakis hadn’t talked about the debt-bond swap with officials from the European Union or European Central Bank who, along with the International Monetary Fund, make up the EU-IMF-ECB Troika which has effectively run Greece since granting the first of the loans in 2010.
Those came with required big pay cuts, tax hikes, slashed pensions, worker firings and privatizations that Tsipras said he would reverse but he, too, has started to slide away from those promises to say he would not act unilaterally but would talk with the creditors – EU and ECB officials directly – but not Troika technocrats.
The Finance Minister also said he had not put a value on the swap, the source said, calling it a “work in progress.”
“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,” Reuters and the Financial Times reported he said. “It’s the same with a proportion of the other bilateral bonds held by the official sector.”
The proposal could hinge on the reaction from German Chancellor Angela Merkel, whose country has put up most of the loan monies but demanded austerity in return.
She had rejected debt relief that would have forced the taxpayers in the other 18 Eurozone countries to pick up the bill for generations of wild Greek spending and runaway patronage.
Germany’s Finance Minister Wolfgang Schaeuble told Reuters in an interview that Berlin would not accept any unilateral changes to Greece’s debt program.
“We want Greece to continue going down this successful path in the interests of Greece and the Greeks but we will not accept one-sided changes to the program,” he said at the Reuters Euro Zone Summit.