Tsipras: Greece won’t back down on EU debt
February 9, 2015, 6:25 am

Greek Prime Minister Alexis Tsipras told parliament that he will cut taxes and raise minimum wage as he tries to restructure debt payments to the EU [Xinhua]

After having failed to reach a middle road with the European Central Bank (ECB) and German finance officials last week, Greece’s new Prime Minister Alexis Tsipras is now saying he is ready to hunker down, defiant in his anti-austerity approach to salvaging his country’s economy.

Part of that approach focuses on reversing some of the austerity measures introduced as conditions for Greece’s $300-billion EU and IMF bailout in 2009.

The austerity measures were widely unpopular and sparked months of street protests and violence.

Tsipras says he will raise minimum wages, cut taxes, rehire public workers fired (when the IMF imposed a cap of 150,000) and not seek an extension of the bailout regimen.

Instead, the prime minister said Greece is requesting a bridge – or temporary loan lasting from a few weeks to a maximum three years – until June when he hopes a new deal with the EU will have been put in place.

Addressing parliament he said that Greece wants a fiscal space to be able to renegotiate a restructuring of its debt with European partners.

“We know very well that talks won’t be easy and that we are facing an uphill path but we believe in our abilities,” he told members of parliament.

“The more our partners want austerity, the more the problem with the debt will get worse,“ he added.

On Wednesday, the Eurogroup finance leaders meet to discuss Greece’s status. A day later, Tsipras is likely to meet with German Chancellor Angela Merkel, a staunch opponent of a restructure bid.

Bad blow

Last week, the ECB announced that it had suspended a waiver given to Greek government bonds, rated as junk, to be used as collateral for regular loans.

A junk rating means that the government bonds are considered unsafe for investment; it usually discourages foreign direct investment in the battered Greek economy.

“The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfill minimum credit rating requirements,” the ECB said in a statement released to the media on Wednesday.

A junk bond also falls below ECB standards (referred to as existing Eurosystem rules), which is why Greek government bonds had been issued a waiver after 2008.

Analysts agree that the ECB decision, effective February 11, indicates the Eurozone believes Greece is unlikely to meet its current repayment promises.

Economic collapse

The Greek economy began to unravel in 2009 when the government announced it could not meet its huge debt due to massive overspending.

Its budget deficit began to surge shortly after government financed the 2004 Athens Olympics.

The debt crisis was further exacerbated when the global economic crisis hit and the government feared defaulting on its loans. It had no choice but to seek help from the EU and the IMF.

Although the EU and IMF agreed to a total of over $300 billion in bailout loans, they demanded that the Greek government take severe measures to cut spending.

Athens agreed but this measure was met with millions of Greeks taking to the streets in protest sometimes with violence reported between demonstrators and police.

The BRICS POST with inputs from Agencies