Tsipras Wins Italian Backing. France, Germany Guarded

Italy’s Matteo Renzi promises Greece the “strongest possible support.”

Italian prime minister Matteo Renzi on Tuesday assured his new Greek counterpart, Alexis Tsipras, of the “strongest possible support” in his struggle with other European Union member states over the conditions of Greece’s bailout. Other leaders were more guarded the next day.

Germany’s chancellor, Angela Merkel, told reporters in Berlin she didn’t think the positions of countries in the euro area “with regard to Greece differ, at least in terms of substance.”

Later on Wednesday, French president François Hollande told Tsipras during a news conference in Paris that “respecting the rules is necessary for all, for France too, and it’s not always easy.”

Hollande’s finance minister, Michel Sapin, had seemed more supportive on Sunday when he said Tsipras’ request to renegotiate the terms of Greece’s bailout was “legitimate.”

Tsipras, who leads Greece’s far-left Syriza party, was elected last month on a promise to cancel spending cuts and reverse economic reforms the country has undertaken to qualify for €240 billion in financial support from other European Union countries and the International Monetary Fund.

Days after winning the election, Tsipras rolled back the privatization of Greece’s largest seaport and its public power utility. He also announced plans to rehire public workers, raise the minimum wage and reduce Greece’s debt which was equal to 175 percent of economic output in 2013.

Most of Greece’s privately-held debt was restructured in 2012. Some 90 percent of its debt is now owed to official creditors, mainly other eurozone governments.

Tsipras appears to have already retreated from his demands for a writedown of Greece’s debt, yielding to virtually unanimous opposition from eurozone states. Rather, his finance minister, Yanis Varoufakis, has proposed swapping Greek debt for growth-linked or perpetual bonds, something that would effectively give the country debt relief.

“We are proposing to substitute the other tranches […] with new bonds at market interest which is very low at the moment, with a clause: we will start the entire repayment once solid growth starts in Greece,” Varoufakis told Italy’s La Repubblica newspaper.

Under existing agreements, Greece isn’t expected to start paying back its loans until 2022. The costs of servicing its debt are also fairly low at an estimated 2.6 percent of annual economic output.

It will be far more difficult for Greece to meet another condition of its existing program: to post a primary budget surplus of 4.5 percent next year.

Under Europe’s fiscal compact, Greece is also supposed to start reducing the part of its debt that is in excess of the bloc’s 60 percent treaty limit by one twentieth each year.

Greece is unlikely to achieve either, especially if Tsipras wants to raise public spending at the same time.

Renzi nevertheless said on Tuesday there was room for “common ground” while Tsipras insisted the following day, “We are in a good direction to find a viable agreement.”

Greece’s current aid program is due to expire by the end of February. Although Varoufakis maintains that the country doesn’t need more support if it can raise revenues by clamping down on tax evasion, the deadline raises the fresh prospect of a Greek sovereign default.